This NYT article on today’s oil market (registration required) does a nice job of summarizing the uncertainties that are roiling the world oil market:
Prices have rocketed as China’s economic expansion drives the fastest demand growth in a generation, stretching world fuel supplies to the limit and leaving no cushion to cope with supply problems.
Traders are worried over threats to supply from Nigeria, Africa’s biggest producer, which pumps high-quality crude prized for its yield of transportation fuels.
Independent port inspectors SGS said that Royal Dutch/Shell’s Nigeria crude loadings will go “on hold” as a result of a two-day strike by Nigerian oil unions that started on Thursday. …
Supply worries have intensified after mid-September’s Hurricane Ivan, which cut September U.S. crude production to its lowest in any month since 1950 and disrupted operations at refineries along the Gulf Coast.
About 478,000 barrels per day of crude output in the Gulf of Mexico, 28 percent of gulf production, remains shut due to storm damage and industry executives estimate it could take 45-90 days to restore supplies from offshore platforms.
Macro policy economists generally think that in order to have a substantial negative impact on the economy, the price will have to be sustained above $50/barrel for some time, instead of just spiking up occasionally.
Why do you think that is? I’ll give you a hint (and it’s only a hint, because I have assigned my freshman seminar an essay on this and I don’t want to give it away): energy consumption per dollar of GDP has fallen dramatically over the past half-century. This table from the Energy Information Administration shows that in real dollars, today’s energy consumption per dollar of GDP is about half of what it was in 1949.
So although in absolute terms we consume a huge amount of energy, we get more economic bang for the buck out of each BTU than we used to.
More later, after my students hand in their assignment …