Posted on 01/18/2014 10:12:50 AM PST by Praxeologue
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 ...
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.
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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.
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disagree.
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.
Get back to me in two years.
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Might get to $3.00 in two years. I hope not. For the sake of the oil drillers. I’d like to see them get two more years of high oil prices so they have time to get their costs down. That way US oil production can keep rising. But the deal with Iran may bring too much oil too soon to market and push prices down fast—and kill US oil production increases—thank you barry—... hard to say on that. Demand for oil is going up smartly too.
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$2.00 oil won’t come for 5-10 years. That’ll have to wait until electric cars and natural gas trucks and buses take a huge bite out of demand for oil.
M2 velocity had decreased because 2.4 trillion dollars are sitting at the Federal Reserve as liabilities: reserves of depository institutions, all but $78 billion of which are in excess of reserve balance requirements. These reserve accounts paid for the Fed's acquisition of Treasuries and MBS' during its quantitative easing programs. The Fed, desiring to stimulate the economy, is disappointed that the banks have not lent out these reserves. The banks, however, do not have enough credit-worthy demand for loans to absorb these reserves.
I don't find this concerning, since these reserves result from an artificial stimulus program. Why should there be demand for that? There are other problems with the economy and the capital markets, but not this.
Oh no! Oil glut! You know that that means?!? Prices of nearly everything falling as the price of oil falls and less and less petro-lucre is in circulation! What a disaster!!! Send troops to prevent KeystoneXL, fracking, offshore drilling...
OPEC ping.
Thanks Kennard.
He’d get more out of life as a rig hand.
" "Former Federal Reserve Gov. Laurence Meyer told CNBC Tuesday that velocity of money—the rate at which capital is transacted in an economy—shouldn't concern markets, and he dismissed the metric as a guide in setting central bank policy. "
"The concept is not very useful, Meyer said. "Monetary policy is about affecting rates, which affect financial conditions and affect aggregate demand."
the way things are shaping up we all could
we could call it welcome to Retroit
Prices of nearly everything falling as the price of oil falls and less and less petro-lucre is in circulation!
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I would have preferred that the Iranian deal be held off for another two or three years because with two million or so barrels of Iranian oil plus the new oil the USA is producing—the price of oil will fall enough to kill some of the new fracking fields in west texas and oklahoma...which means that the rise in US oil production will halt short of oil independence.
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Then there’s rising electric car production.
http://www.freerepublic.com/focus/f-news/3113162/posts
I’ll have to look around to see how fast the uptake of natural gas based trucks and busses be.
Note Meyer's reference to this Keynesian concept. Austrians don't think in terms of velocity.
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