Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands. Cults everywhere: Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...
Tempus Fugit Memento Mori - Time Flies Remember Death
Anyone who follows trade and the political-economy, has to be amazed by the price of oil. Most of us were entirely wrong when we scoffed at Goldman Sach's 2006 report forecasting $100 bbl oil. They were right. So why aren't we in a recession? The ramp up in oil teaches some valuable lessons about the political-economy.
One key lesson is market efficiency. Oil and energy are part of a complex, which has undergone a sea change in innovation, productivity enhancements and effective output. This oil specific market flexibility has been combined in the past 10 years, with an increase in global trade. As trade has increased, market flexibilities have followed. The more flexible your labor and product markets are – the greater the ability to absord higher input costs and restrain inflation.
Contrary to the Eco-Marxist cult and sundry millenialists, market dynamics lessen the impact of higher oil prices. We use more oil, more efficiently, and more productively than ever before. This is in spite of various eco-cult restrictions on drilling, refining and distribution.
As Daniel Yergin a prolific expert on energy and global trade states, '“Over the past 30 years, U.S. GDP has grown by 150 percent, while U.S. energy consumption has grown by only 25 percent.' We do a lot more with less.
Not only conservation but the improvements in energy sourcing, distribution, products such as cars [using catalytic converters] and a fundamental shift to clean burning coal and electricity systems, has led to a more energy efficient society. Along with an increase in trade and globalisation, this has meant that a more flexible economy is able to absorb and deal with, higher input prices.
Robust trade and retail market competition, restrains the inflation of higher oil prices, and as products make their way through the supply chain, greater competition squeezes out these higher costs until at the retail level, we see only moderate price increases. A case in point is the recent ramp up to $90 per bbl oil, while retail gasoline prices in the US have actually fallen. Trade and market-capital-labor flexibility are key reasons why our economy is able to absorb higher input costs.
Just imagine what could happen if we actually had a free market in oil. Oil is not a free market commodity – not in its refinement and distribution at least, which are subject to local, and regional distortions including various taxes, fees, and even govenment mandate price-setting as seen in most Canadian provinces. At the source level, OPEC, an Arab-run cartel controls about 40% of the world's oil supply and this of course negatively affects market-pricing power. One good reason to be in Iraq, is to break OPEC.
Much media angst is expostulated in their view that the economy is of course a disaster, since we are now approaching the inflation adjusted highs for oil that reigned in the late 70s and early 80s. At $100 per barrel we would surpass those levels. As a % of GDP however, oil is about one-third of what it was 25 years ago. In fact it is electricity that is powering the economy, not oil:
'Today, oil is not the dominant fuel of our modern economy; it supplies about 40% of the raw energy we use and mainly sees use for automobiles and transportation. Coal, uranium, gas, and hydroelectric power supply the other 60%. By far the most important use of this not-oil fuel is to produce electricity to power almost everything else.
Electricity, not oil, defines the fast-expanding center of the energy economy. About 60% percent of U.S. gross domestic product (GDP) now comes from industries and services that run on electricity.'
[from, Peter Huber and Mark Mills wrote one of the best-ever books on energy technologies: The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy].
For the chattering Marxist and Eco-cult member, nuclear power would be a cleaner and more scaleable solution to power electricity plants and grids than clean burning coal or oil stations. We need more electricity and grid power to grow our economy and it is not an exagerration to state that our infrastructure needs a massive rebuild to accomodate future GDP growth.
In any case oil prices will likely remain above $65 per barrel for some time – possibly years. The reasons are obvious, and the solutions to this conundrum even more so. Even though supply at about 88 million barrels per day is sufficient to meet current demand that relationship is endangered by geo-political conflict in the Middle East and beyond. OPEC is always a threat. And then there is the continuing growth of China and India. China’s oil imports are rising by 30-40 % per annum yet it continues to face energy shortages in industrial, manufacturing, and consumer sectors. Much the same is occurring in India.
The real culprits – the Eco-Fascist club:
Much of the problem with oil prices is not production or supply but rather refining. Eco-fascist and over-bearing government regulations to buy off left of centre votes have ensured a dearth of refinery capacity in North America. The U.S. Energy Department reports that refining capacity in the United States has grown by just 2.4% since 1977, while demand for gasoline has risen 27% during the same period.
No major new oil refineries have been built in the United States or Canada since the early 1980s, and many of the ones that used to exist have been shut down. In fact, many of the refineries that disappeared in the past 20 years were closed because it would have been too expensive to upgrade them to meet new environmental rules.
No new refineries have been built since the U.S. Environmental Protection Agency brought in its Clean Air regulations, which placed limits on refinery emissions. Just meeting the various local, state and federal environmental and planning requirements for a new refinery cost as much as $100 million. If the permits were acquired, the U.S. Senate Committee on Environment and Public Works estimates the cost to build a new refinery at a whopping $2.5 billion over 7 years.
Yet in Canada and the USA, we have made up the shortfall in oil production by importing foreign crude. Even the Canadians, the largest exporters of oil to the US by a wide margin, import North Sea and Venezuelan oil in the east of the country – thanks to various market dislocations imposed by the Canadian goverment on Western oil producers. The Americans who import about 15% of their oil from the Middle East could immediately make this up by increasing Canadian and US production, but thanks to government and various regulations, including overbearing royalty and production taxation, this is not likely.
Yet politicians and the media endlessly drone on about ending foreign dependence. The US could do so in 5 years if governments had the right policies and the right resolve.
The key solution to surging oil prices lies in repudiating eco-fascist regulations, protected areas and government taxes and fees for resource development, and improving access to North American based reserves and production. Refining capacity must be increased and foreign dependency reduced through increased production. Lastly OPEC should be broken and a free market in oil commodities established. By doing this the US and Canadian economies will continue to grow and corporate profits which eventually translate into investments and job creation, will continue to accelerate at 15-20 % per year.
All of the above would allow oil prices to fall.
In lieu of this, we will have to make due and ensure that our product and capital markets are flexible enough to absorb oil's higher floor price. As long as our economy remains reasonably flexible there is no reason to expect an economic catastrophe from higher oil prices.
