Daily Archives: April 12, 2010

Kate Mackenzie

Luis de Sousa at European Tribune blog has put together a chart of oil dependency among most EU economies. Can you see a theme?

Look at the top five countries for oil as a proportion of energy, which comes from the EU’s 2008 Strategic Energy Review:Greece, Ireland, Portugal, Spain, and Italy.

Kate Mackenzie

James Hamilton, author of possibly the most comprehensive study into the macro-economic effects of the 2007-08 oil price run-up, has given his answer to the question of whether oil prices are already high enough to stifle economic recovery, and it is this:

$87 oil is certainly not helping the recovery. But I would be very surprised if it proves to be the kiss of death.

Hamilton’s own modelling suggests that oil prices have proven a somewhat reliable predictor of economic growth, suggesting that:

The downturn was more severe than could be attributed solely to the oil shock of 2007-2008, but that shock appears to have been an important contributing factor, and the overall path followed by GDP up to this point is very similar to the 2-year-ahead prediction.

However, he adds that the same modelling also suggests that the recovery wasn’t helped by lower oil prices, but was simply normal cyclical recovery.

While the forecast from the same model, Hamilton writes, “we wouldn’t have to worry about another oil shock until the oil price series in the top figure gets back above the values of 2008:M6 or until the 2008 highs recede farther into memory”, he is not so sure.

In effect, he points out that while $3 gasoline isn’t great during a vulnerable time, it is still a lot lower than the $4 seen not so long ago.  On light vehicle sales, he says: they have already been impacted so much that it’s hard to see them going down much further. That memory is still strong, in other words – dulling the effect of rising prices now.

Finally, Hamilton notes that expenditure on energy, as a proportion of total consumption, is below the 6 per cent level that tends to herald “dramatic adjustments” in behaviour, which he charts as follows:

A few issues are worth considering, however:

1. That line is rather close to the magic 6 per cent. Hamilton’s analysis – dividing the BEA‘s ‘energy goods and services’ figure by the total ‘personal compsumption expenditure’ figure, gets us to 5.69 per cent in January 2010. Hamilton (in the comments) estimates a $1 rise in WTI equates to a 2.5c rise in gasoline per gallon; the EIA, we note, has a similar figure of 2.4c. [Unfortunately we don't know of a straightforward way of extrapolating that into the percentage of consumption.]

2. While the memory and lingering effect of $4/gallon might dampen reactions to today’s rising prices, several of Hamilton’s readers raise the very good question of what today’s constrained credit environment might mean.

3. Oil market analyst Stephen Schork has talked about a similar problem several times in recent months, although his figures come out differently to Hamilton’s, namely because he uses a different category of BEA data – the ‘gasoline and other energy goods’ column, while Hamilton takes his figure from the ‘energy goods and services’ column, which is presumably broader. The categories are difficult to find on the BEA’s own rather convoluted website, so we’ve used the Econstats.com website which Hamilton uses.

The magic number…

By Schork’s method, the percentage that signals tipping over is somewhere around 4.2 – 4.6 per cent — the range seen in November 2007 to June/July 2008.

On Schork’s category the latest data (January 2010) is at 3.58 per cent – quite a jump over the previous month’s 3.36 per cent.

Unfortunately Econstats.com does not yet have the February data converted from the BEA’s indexed measures into absolute amounts, but the release suggests that February spending on energy was down. One of Hamilton’s readers however says he calculated the February figure at 5.9 per cent, using the same category as Hamilton.

More news as it comes to  hand…

Related links:

Will a product squeeze see oil prices keep rising? – FT Energy Source
US driving season could show demand destruction
– FT Energy Source
Gasoline vs bimbos with big hair
- FT Alphaville
US consumers spending their savings on energy
- FT Energy Source

Kate Mackenzie

China’s crude oil demand is generally thought to be on an almost-unstoppable growth trajectory, and new official preliminary data show imports were up 29 per cent in March from a year ago. It’s seen as the single biggest driver of demand growth.

But as this chart from BNP Paribas shows, growth in consumption for many refined products in 2010 (shown in blue) may actually see a pullback from 2009:

It’s a different story for gasoline and diesel, but as BNP Paribas’ Harry Tchilinguirian observes, much of China’s 2009 crude demand growth came from infrastructure and petrochemical demand.

Kate Mackenzie

Three days of climate talks at Bonn, ending in the early hours of Monday morning, did not seem to add to confidence that a binding agreement would be forthcoming by the time the big Cancun meeting is held in November/ December.

Quite the opposite, in fact. The rough near-consensus that was formed around the “Copenhagen accord” struck in the final hours of the Copenhagen climate conference last December has comprehensively fallen apart, with most reports from Bonn talking of “squabbling” and long overnight arguments over procedure, such as this BBC report:

On the final evening of the three-day meeting, delegates took more than four hours to agree apparently simple matters such as how many times to meet over the year, and how the chair should write a draft negotiating text.

This reflected the deeper disagreements highlighted by the Copenhagen accord. Despite some 120 countries signing up for the hastily-agreed accord, many developing countries, including India and China, are now criticising it for not maintaining mandatory targets for developed countries.

Kate Mackenzie

- Gulf Arab countries’ cheap energy addiction must end

- The carbon cap and Iran’s petrodollars

- Are rising oil prices threatening the recovery already?

- Affordable action on climate change

- Energy gap or climate crisis?

Kate Mackenzie

UN climate talks wrap up after fresh rows (AFP)

Total still keen on UAE despite nuclear setbacks (FT)

Reliance in $1.7bn deal with US’ Atlas (FT)

Mirant and RRI in $3.1bn merger (FT)

Texas oil firms oppose Californian climate law (NY Times)

China boosts crude imports 29%, remains net fuel buyer (Bloomberg) 

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