Skip to comments.Coming 'oil glut' may push global economy into deflation
Posted on 01/18/2014 10:12:50 AM PST by Kennard
One piece of the jigsaw puzzle is missing to complete the deflation landscape across the West: a slide in oil prices. This is becoming more likely each month. Turmoil across the Middle East and parts of Africa has choked supply over the past two years, keeping Brent crude near $110 a barrel despite a broader commodity slump. Cotton and corn prices have halved, as has the UBS index of industrial metals. Such anomalies rarely last. "We estimate that crude oil is now the mostly richly priced commodity in the world," says Deutsche Bank in a fresh report. Michael Lewis, the bank's commodity strategist, said markets face an "new oil supply glut" as three forces combine. US shale will add 1m barrels a day (b/d) to global supply for the third year running; Libya will crank up shipments after a near collapse in 2013; and Iran will come out of hibernation. "This will push OPEC spare capacity to levels last seen in the depths of the financial crisis in 2009," he said. America is on track to overtake Saudi Arabia as the top global producer of oil by 2016. It will account for more than half of non-OPEC world supply this year. The US Energy Department says US oil imports will drop to 5.5m b/d by next year, half the level a decade ago. This turns the world's 89m b/d market upside-down. Deutsche Bank said Saudi Arabia may have to slash its output by a quarter to 7.5m b/d this year to stop the bottom falling out of the market. The Saudis no longer have such money to spare. They are propping up an elephantine welfare nexus to keep a lid on explosive tensions in the Eastern Province, home to Saudi oil and its aggrieved Shia minority. A cut of this
(Excerpt) Read more at telegraph.co.uk ...
Bring on the glut....
Bad news for Saudi Arabia and Al Qaeda. Finally.
With all the money we’ve printed, and all the debt we owe, deflation is the last thing the Fed will allow.
In the mid-long term, the new fracking craze will raise up a lot of previously inaccessible oil. If the Middle East malaise partly clears, that is a bonus.
I’m almost wondering if this is a silver lining of Obama’s inept foreign relations. The world knows it can’t count on America, so it begins seeking what it can for itself. And then God blesses it for doing so. Could our more foreign relations savvy Republicans actually have been making the world too dependent on America for its own good?
Gee, just think if our government were PROMOTING
oil production. We’d be in a hell of a fix...
Well, at least it would be a counterforce to its consequences. Like I’ve said, we need a gold mine in America to pay for all this funny money. Maybe fracking oil is it.
And imagine how much worse the economy would be without the fracking boom. < shudder>
They'll just increase spending proportionately. Bummer, huh?
The private sector seems to be doing a pretty fair job of it.
The high gas prices are partly because of overregulation choking the refinery biz. Only a handful of blessed, expensively fitted refineries furnish the juice pumped by gas stations nationwide, and so the sparse competition lets prices stay high. Let more refineries into the picture (to be sure, established ones will try to fight that) and we will be travelin’.
Well that is a temptation.
But who says we need to have idiots at the helm forever?
Don’t the Chinese have oil shale too?
No problem, the Feds will just double or triple taxes to compensate.
If they do, they probably won’t be shy about cooking it out even if it smogs the whole Chinese countryside.
More oil WILL eventually reduce the cost of gasoline which will give people more discretionary spending income which will raise net worth. Yes, I know it's a fungible product. However, eventually the net cost of gasoline will decrease.
Funny how the Time and Newsweek rags said we were running out of oil so many decades back much like other erroneous crap they predicted on another thread here on FR.
A gracious God is being rather annoying about knocking at our door with blessings, every single time the Chicken Littles think they have a bulletproof racket going.
Pax Americana should have lowered risk, increased production and kept oil prices down. Higher oil prices, however, will now increase unconventional U.S. production, improve the U.S. balance of payments and counteract the domestic negative effect of high energy costs. As you imply, this may be a win either way for the U.S.
Like I said, it would counter an inflationary trend, so he isn’t entirely in the dark. He just needs more picture in his equations. The world kited money. Then God stepped in and showed it more real wealth. Agh, what is Satan to do? Well Satan does have us despising ourselves in other ways. Abortion and the wastes of socialized medicine, ‘nuff said. But it’s only our own fault that this situation has to go on as badly as it is.
Just about everybody has oil and gas shale.
Massive reserves in S. America, Europe, Australia and China. Probably the largest volume is in Russia, not surprising since it is the largest country.
When US prices for gas drop low enough, those American who have acquired expertise will fan out across the glove and drill for the gas there.
All of which is a very good thing. The power and influence of the Arab oil states, and by extension that of Islamists, has flowed from their control of a scarce resource. When the resource is no longer scarce, their influence goes bye-bye.
Oil glut bring deflation...
This guy is definitely on drugs and may reside in Colorado. Oil glut means cheap energy and business expansion. This must be the decade of bad science and idiot wetters.
Exactly. If we hit a period of deflation, cash will be king. I have a good amount that I’ll be turning into tangibles if this happens.
WELL....do you want children to go to bed hungry?
Not hungry...just sick without medical care. It’s easier to lie your way out of it.
There are still around two billion people without electricity or reliable power. Cheap gas makes that easier, from generators to vehicles.
For the developed world, cheaper gas means more disposable cash and hence more money for the service economy and employment.
“Funny how the Time and Newsweek rags said we were running out of oil so many decades back much like other erroneous crap they predicted on another thread here on FR.”
That bs was pushed by the Opecker Princes back in the late 1950’s and from then to now.
They bribed every left wing professor and economists, (Left Wingers = Probably about 99.98 % of both groups). Then they created and financed the green economic terrorists, funded the Gorebull warming thugs/ We have been shipping our money to the Opecker Princes for decades and spilling American blood in the middle east for that time.
Hopefully, some healthy competition will destroy the Opecker Princes and their evil cartel know as OPEC.
Then, as their oil fortunes and power decline, maybe the Saudis and their allies will enter into a mutually destructive battle with Iran and its insane allies. Hopefully, the US will stand back and watch Allah sort out the winners and losers.
From Peak Oilers to Oil Glutters, they turn themselves into pretzels trying to turn good news into bad.
Despite Obama's best efforts, the oil markets are working.
Oil glut but food shortage. Can you have deflation with the price of food going through the roof? Wait until you see what happens to the price of food when the California drought is factored in down the road. Some investors will make a fortune on commodities this year.
“When US prices for gas drop low enough, those American who have acquired expertise will fan out across the glove and drill for the gas there.”
That will be one of the best investments for a few decades.
Investment in companies that have the experience/expertise you cited, and the companies that can build the refineries/pipe lines and other large standing investments needed with the ‘New’ discoveries.
The Fed’s no longer in control.
Thank you NV. IF the ME settles down, IF shale well productivity is maintained, IF this and IF that... The first two are unlikely and the first one has never happened longer than about a year in the last 40+ years.
The REAL inflation adjusted cost of fuel may decrease and if it does a time of prosperity will ensue. We will not see “cheap” $2 gasoline though. Instead it will not inflate as much as it has at other times.
There will be ebb and there will be flow and money will shift from one alternative to the better one. Recessions will come and depressions will as well. Populations will generally increase and the poor will increase in number.
Generally, the quality of life will become diluted and worse as more humans use the finite resources and space of spaceship Earth. Eventually there will be wars and some will die, probably not enough to make a difference for the survivors though. Mankind will eventually become victim to a disaster and the many fewer survivors will start the cycle again or not but you and I will be long dead by then.
I don’t think we will see dramatically lower fuel prices. I do think we will have greater stability. OPEC will not be able to manipulate prices as they have in the past.
Actual 'power to the people' is an anathema to some...
They're still well above 2010.
My aren’t you cynical.
Some unconventional political work is called for.
The cynic’s rant is “Our future has to be our past!”
Will be interesting to watch the possible glut run into Caliph Baraq’s 54 mpg standard for new vehicles.
Evans-Pritchard sees an oil glut, rising world money supply, rising world debt and austerity as causing deflation. His economic thinking has the logic of an AGW scientist. He has a huge following, however.
what galls me about these guys is that even though they are always wrong, they keep their following.
Lower oil prices will act like pure oxygen on the world economy. While they will depress the oil patch—they will light a fire on the rest of the economy. This is great for mixed economies like the USA & China and even better for Europe and Japan, but its hell on the Gulf States and Russia.
What’s not to like?
We will not see cheap $2 gasoline though. Instead it will not inflate as much as it has at other times.
We will see $2 gasoline. But not for a couple years.
There is now a two front war on the price of gasoline. Not just the supply but also the demand. The effects on the demand side however are still at least 5 years away. But when they come, they will be brutal on the oil patch.
I’m sure a way to keep gas prices will be found no matter what.
I started reading...wait a minute, who wrote this...oh, that AEP poofter again..."doom and gloom next month!" for decades...his loyal followers must be smarter than me.
I love your last chart. Evans-Pritchard could ‘pivot’ and make it the theme of his next article.
Wouldn't deflation mean that our salaries would by more and stimulate the economy?
Somebody will be right.
Get back to me in two years.
The Government's tax intake would also go down in number of dollars, but steady in buying power.
But we have to pay interest on the debt in numbers of dollars, not in buying power, so with fewer numbers of dollars coming in, it would be harder to continue to service the debt.