Wednesday, October 9, 2013

No more oil shocks?

***First article for second set of material.***

Today in class Forest talked about how oil futures were high right now. Well, that may have been true earlier, but as this article puts it, "the bearish overall outlook for crude prevail(s)."

That analysis is the short-term version of the long-term trend described in today's NYT article on oil, which contends that, "It is likely that the world has already entered a period of relatively predictable crude prices." It says that increased supply from the US, Canada, Iraq, and Saudi Arabia, driven by application of the technology developed to frack natural gas is keeping up with difficulties posed by decreased access to the products of other countries such as Iran and Libya. Demand is tempered by increased efficiency in use, by mandates to increase use of biofuels, and by changes in society such as the ability to order things online. When one vehicle is delivering everyone's packages, that's a lot fewer car trips to the store!

Meanwhile China has accounted for more than half of the global demand growth over the past five years. This year China is expected to pass the US as the largest importer of oil, and it's expected to stay there for a long time. However, the government there is restricting that growth, so while use will continue, the growth rate is expected to slow. Also, increasingly cheap access to natural gas is inspiring investment in how to have that product fill the niche of petroleum. It's been a quick fix to update heating systems, and more and more cars are running on it.

All in all, a very economic story! We'll talk more about it in class.

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