Stupid headline and stupid response.

Unemployment is a macro problem, and cutting spending does’t create jobs.

It’s the continuing saga of the blind leading the blind.

Looking for $31 billion in federal spending cuts this week.
And that’s just a down payment.

Obama: Shift From Foreign Oil Will Help Create More Jobs

April 2 (AP) — President Barack Obama says shifting the U.S. away from imported oil and toward cleaner forms of energy will add momentum to a trend that has led to 1.8 million new jobs in the past 13 months.

Obama used his weekly radio and Internet address Saturday to promote his ideas for bringing down gasoline prices by decreasing U.S. dependence on foreign oil. A blueprint he outlined in a recent speech calls for increasing domestic oil exploration and production, making cars and trucks more energy efficient and building vehicles that run on alternative fuels or electricity.

Noting that the U.S. doesn’t have enough oil reserves to meet its needs, he set a goal of reducing imports by one-third by 2025.

“By doing so, we’re going to make our economy less vulnerable to wild swings in oil prices,” Obama said. “We’re going to use cleaner sources of energy that don’t imperil our climate. And we’re going to spark new products and businesses all over the country by tapping America’s greatest renewable resource: our ingenuity.”

The address was Obama’s third in recent days on the issue. On Wednesday, he travels to the Philadelphia area to visit an arm of the Spanish company Gamesa, maker of giant turbines that generate electricity from wind.

Oil prices have climbed because of increasing demand in China and instability in some oil-producing countries in the Middle East. That, in turn, has pushed U.S. gasoline prices to new highs. The national average for a gallon of gas hit $3.619 on Friday, the highest price ever for this time of year, according to AAA and other sources. Prices have climbed 23.2 cents in the past month and more than 81 cents in the past year.

Senate Republican leader Mitch McConnell agreed with Obama on encouraging more domestic energy production. But he accused the administration of stifling that industry’s growth by canceling drilling leases, halting drilling off the Gulf Coast after last summer’s oil spill and increasing permit fees.

“As a result, thousands of U.S. workers have lost their jobs, as companies have been forced to move their operations overseas. That must end,” the Kentucky Republican said. “We must do more to find energy here at home, and the jobs that go with it.”

Obama said that sparking new products and businesses during a transition away from imported oil will help create jobs. The government reported Friday that 230,000 private sector jobs were created in March, bringing the total number created in the past 13 months to 1.8 million. The national unemployment rate also dipped to a two-year low of 8.8 percent last month.

“That’s a good sign,” Obama said. He recorded the address at a UPS shipping facility in suburban Maryland, where he examined all-electric and hybrid vehicles used by AT&T, Verizon, PepsiCo and other companies.

“But we have to keep up the momentum, and transitioning to a clean energy economy will help us do that,” Obama said.

House Speaker John Boehner, R-Ohio, focused his party’s weekly message on steps he said the government must take to encourage small businesses to create jobs. Among those steps are continuing to cut spending, blocking tax increases, reducing the bureaucracy and eliminating regulations. Boehner once owned a small plastics and packaging business in Ohio.

Boehner said Congress also needs to pass a bill funding the government through Sept. 30, when the budget year ends, and avoid a shutdown. The government’s authority to spend money expires next Friday.

“Washington’s inability to get spending under control is creating uncertainty for our job creators,” Boehner said. “It’s discouraging investment in small businesses and eroding confidence in our economy. To put it simply, the spending binge in Washington is holding our country back and keeping our economy from creating jobs.”

DJ Algeria Oil Min:Increasingly Hard To Understand Market Dynamics

Agreed!

DJ Algeria Oil Min:Oil Markets Increasingly Respond To Financial Speculation

Agreed! The funds involved in commodity speculation dwarf the funds involved in the physical markets

DJ Algeria Oil Min:Market Volatility Makes Energy Investment Difficult

Agreed! The risk of a price collapse is a major factor for long term investment decisions.

DJ Algeria Oil Min: Seeking To Exploit Shale Fields In Algeria
DJ Algeria Oil Min: Will Seek Partnerships To Exploit Unconventional Oil, Gas
DJ Algeria Oil Min:Sonatrach, Partners To Invest $2.5B/Year On Unconventional Hydrocarbons
DJ Algeria Oil Min: Europe Will Need Long-Term Gas Contracts

Yes, long term contract work best for both producers and users to ensure the viability of investments and the stability of supply and price

DJ Algeria Oil Min: No Shortage Of Physical Oil

Agreed! Reinforces the fact that the Saudis are the swing producer/ultimate price setter as previously discussed

DJ Algeria Oil Min: OPEC Will Respond If There’s A Shortage Of Crude

Confirming excess Saudi capacity estimates

DJ Algeria Oil Min: No Requests For Extra Crude From Algeria

Confirming no supply shortages and Saudi price setting

Here’s my take.

As before, all the world actually cares about is the price of oil.

And the internal struggle will wind down with someone controlling the oil.

And whoever gets control of the oil wants the oil for only one reason- to sell it.

In a land of haves and have nots (at all levels), and no understanding of fiscal balance, it’s all about having the oil to sell.

So that means prices go back to where the Saudis want them to be.

My guess, and all anyone can do is guess, is Brent at maybe 100 which puts WTI maybe just under 90 until the glut issues are sorted out.

If this happens, seems-

The long oil long trades reverse.
Food prices back off some.
The view of the economy goes from half empty to half full.
The dollar gets a lot stronger.
Energy related stocks lose, others win.
But a stronger dollar may dampen prospects for US stocks.
Bonds move with stocks.
Attention shifts back to China, Europe, UK, and US fiscal policies, which are all in tightening mode.

And happy birthday to my brother Seth who turns 60 today! He just posted some old family pictures on facebook.

Right, as swing producer/monopolist that’s what they necessarily do- set price and let quantity adjust.

But if quantity demanded exceeds their ability to pump they lose control of price on the upside.

>   
>   (email exchange)
>   
>   On Thu, Feb 24, 2011 at 9:43 AM, Greg wrote:
>   
>   Just like you say about the Saudi’s…..
>   

Saudi Arabia in talks to boost oil output

By David Blair, Jack Farchy and Javier Blas

February 24 (FT) — Saudi Arabia is in “active talks” with European oil companies to meet the production shortfall left by Libya, the clearest indication to date that the leader of the Opec oil cartel is about to boost supplies to stop further rises in the oil price, which surged to near $120 a barrel on Thursday.

Riyadh is asking “what quantity and what quality of oil they [the European refiners] want,” a senior Saudi oil official said on condition of anonymity.

Oil traders said the talks signalled that Saudi Arabia realised that the political crisis in Libya was now an oil supply crisis and that the kingdom needed to act quickly and decisively to stop oil prices hurting the global economic recovery.

“You can only expect the price to go up. It is fear of the unknown. The risks are all to the upside,” one senior oil trader said. “Saudi Arabia needs to respond.”

The kingdom is considering two options for increasing supplies. The first would be to boost Saudi production and send more crude through the kingdom’s East-West pipeline, which links the Gulf region with the Red Sea port of Yanbu, for shipment to Europe.

Another possibility, which is currently only being “studied”, would be a swap arrangement, whereby West African oil intended for Asian buyers is redirected to Europe, with Saudi Arabia stepping in to supply the Asian customers.

West African oil, such as Nigerian crude, is very similar to the gasoline-rich Libyan oil, traders said, noting that West Africa is geographically closer to Europe than Saudi Arabia.

“Right now, there are active talks in order to implement what is needed,” the Saudi oil official added. He stressed that the kingdom retained spare capacity of some 4m barrels a day – more than than double Libya’s entire output which totalled 1.58m b/d in January, according to the International Energy Agency.

Saudi Arabia has not yet decided whether to increase its output in response to Libya’s crisis, the official added, saying it would depend on the requirements of European oil companies.

If it proved necessary for Saudi Arabia to produce more, “then that will happen, there’s no problem at all”, he added.

Traders believe Saudi Arabia has the capacity to boost production by at least 1m b/d with just 24 hours notice, meaning that if a decision was adopted now, the oil tankers could be arriving in Europe within 10 days.

The move by the world’s largest oil producer comes as Eni of Italy, the most active foreign oil company in Libya, said on Thursday that oil production from the North African country has plunged to just a quarter of normal levels.

Increasingly panicked buying drove the price of Brent crude futures, the global pricing benchmark, up 6.7 per cent to a peak of $119.79, the highest since August 2008. Traders and investors feared that the near-total shutdown of Libya’s oil industry would leave the global oil market with little supply cushion should the political crisis spread to another major Middle Eastern oil producer.

Paolo Scaroni, Eni chief executive, on Wednesday made the most pessimistic public assessment to date of the impact of the Libyan crisis on the country’s oil output, saying the country was producing only 400,000 b/d, compared with 1.6m b/d before the violence erupted.

“The real phenomenon is there are 1.2m barrels less on the market,” Mr Scaroni told reporters in Rome, adding that the loss of Libyan production was “not a huge thing, but it is something and there is also a sense of general uncertainty in the region which can be the trigger for speculation”.

The shortfall means the world market is enduring its biggest oil crisis since hurricane Katrina in 2005 knocked out most US oil production in Gulf of Mexico.

Traders believe that Saudi Arabia has the capacity to increase production and also the oil of the right quality to meet the shortfall. The kingdom produces so-called Arab Extra Light and Arab Super Light, which through blending could be made to resemble the high-quality, light, sweet oil produced by Libya.

The Saudi move comes as oil prices reached levels that many economists believe will dramatically slow the global economy and potentially trigger a double-dip recession. Oil prices hit an all-time high of nearly $150 a barrel in mid-2008.

Might need to delay ‘peak oil’ a bit.

More interesting, I’d estimate it would take about a 5 million barrel a day ‘shift’ in net demand to dislodge the Saudis as swing producer, as they can only cut production by less than that much to sustain price should that happen.

In other words, a combination of increased non opec supply and reduced world demand of 5 million bpd would force a cut in production of that much for the Saudis to be able to continue to set price, from their current production level of about 8.5 million bpd.

And along with these ‘new drilling methods’ Iraq is looking to add over 5 million bpd in capacity over the next several years.

The question is what will happen with demand, and looks to me the US and Europe are starting to go the other way and reduce gasoline demand via conservation (higher mpg’s in vehicles) and shifting to alternative fuels, directly and indirectly.

So what’s the Saudi’s best move here?
Keep prices high a long as possible and get all the wealth they can before prices collapse?
Or cut price in an attempt to discourage the forces at work that are threatening their pricing power?

New Drilling Method Opens Vast Oil Fields in US

February 9 (AP) — A new drilling technique is opening up vast fields of previously out-of-reach oil in the western United States, helping reverse a two-decade decline in domestic production of crude.

Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas and California. By 2015, oil executives and analysts say, the new fields could yield as much as 2 million barrels of oil a day—more than the entire Gulf of Mexico produces now.

This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.

“That’s a significant contribution to energy security,” says Ed Morse, head of commodities research at Credit Suisse .

Oil engineers are applying what critics say is an environmentally questionable method developed in recent years to tap natural gas trapped in underground shale. They drill down and horizontally into the rock, then pump water, sand and chemicals into the hole to crack the shale and allow gas to flow up.

Because oil molecules are sticky and larger than gas molecules, engineers thought the process wouldn’t work to squeeze oil out fast enough to make it economical. But drillers learned how to increase the number of cracks in the rock and use different chemicals to free up oil at low cost.

“We’ve completely transformed the natural gas industry, and I wouldn’t be surprised if we transform the oil business in the next few years too,” says Aubrey McClendon, chief executive of Chesapeake Energy, which is using the technique.

Petroleum engineers first used the method in 2007 to unlock oil from a 25,000-square-mile formation under North Dakota and Montana known as the Bakken. Production there rose 50 percent in just the past year, to 458,000 barrels a day, according to Bentek Energy, an energy analysis firm.

March 2005 Article:

Kudlow’s Guest Commentary:

Enter the Dragon – New Dynamics in the Oil Market

By Tom Nugent and Warren Mosler

Traditionally, the hedgers and speculators have ruled the commodity
markets. But now a new behemoth has stepped in- the institutional ‘long
only,’ ‘real money,’ fund manager, who has incorporated indirect ownership
of raw commodities as an ‘asset class.’ Yes, there are very large commercial
hedgers, and there are very large hedge funds who are speculators, but this
new entrant with $ trillions of assets under management is changing the
landscape.

In a recent Dow Jones Newswires article by Spencer Jakab, entitled
“US Pension Funds Dip Toe into Commodities, Roil Waters” the author
presents his research into the prospective impact of direct investor
involvement in commodities:

“…the advent of new funds that have allowed pension trustees to buy
a basket of commodities without dabbling in futures themselves, has
unleashed a torrent of money — an estimated $50 billion of flows into
indextracking funds in the last two years alone, with estimates of
another $50 billion on the way in 2005.”

What makes these funds qualitatively different is that they buy and,
for all practical purposes, never sell. In fact, most of them continue to net
buy an asset class as a percent of their total assets, which means as their
financial assets grow over time they buy and hold more and more
commodities. And this is exactly what the crude oil markets are telling us.
Even as inventories continue to grow well beyond commercial demand, the
price continues to rise, as pension funds continue to buy and hoard
inventory. And, if allowed to continue, this building inventory will grow
indefinitely and NEVER be used! Yes, price is still a matter of ‘supply and
demand,’ but in this case the demand is to hoard- continuously buy and
store, and NEVER sell.

At the macro level, our own pension funds are buying crude oil to put
away forever, by bidding up the price and depriving us FOREVER from using
the crude oil they purchase. This is truly a bizarre set of circumstances
at the macro level, while it makes perfect sense at the micro level. It is a
classic and colossal case of failure of institutional structure to serve a viable
public purpose.


To make matters worse, this monster has staggering geopolitical
consequences that are currently being played out. Hopefully essays on this
developing story will trigger more of the same that will enlighten our
leadership to these new forces in motion. But be prepared for things to get
much worse before they get better.

*Thomas E. Nugent is executive vice president and chief investment officer of
PlanMember Advisors, Inc. and chief investment officer for Victoria Capital
Management, Inc.

*Warren Mosler is a principal of Valance Co. and associate fellow at the Cambridge
Centre for Economic and Public Policy in the United Kingdom.

Crude oil prices continue to rise with no apparent increase in net demand, as evidenced by Saudi output.

No telling how high the Saudis want it to go, but higher prices are not good for the US dollar or the US economy.

The good news is the US budget deficit still looks to be plenty large to support modest top line growth.

And as the deficit continuously adds to incomes and savings, the financial burdens ratios continue to fall, and the stage is set for a ‘borrow to spend’, ‘get a job buy a car’, ‘it’s cheaper to own than to rent’ good old fashioned credit expansion.

But most all of that good news may already be discounted by the higher term structure of interest rates and the latest stock market rally.

And there are troubling near term and medium term risks out there that don’t seem at all priced in.

The rise in crude prices is particularly troubling.

Net demand isn’t up, and Saudi production remains relatively low.

So the Saudis are supporting higher prices for another reason. Maybe it’s the wiki leaks, or maybe they just had a bad night in London.

No way to tell, but they are hiking prices, and there’s no way to tell when they will stop.

Crude prices are already up enough to be a substantial tax on US consumers that has probably more than offset whatever aggregate demand might have been added by the latest tax package.

Might explain the weaker than expected holiday retail sales?

Congress will soon have a deficit terrorist majority, with many pledged to a balanced budget amendment.

And the world seems to be leaning towards fiscal tightening pretty much everywhere.

The unemployment benefits program has been extended but benefits still expire after 99 weeks, and less in many states.

Net state spending continues to decline as state and local govs continue to reduce their deficits and capital expenditures.

Catchup in the funding of unfunded pension liabilities will continue to be a drag on demand.

A federal pay freeze has been proposed.

The Fed’s 0 rate policy and qe continue to reduce net interest income earned by the economy.

Bank regulators continue to impose policies that work against small bank lending.

Seems some income has likely been accelerated into this quarter from next year over prior concerns of taxes rising, distorting q4 earnings to the upside and maybe lowering q1 earnings a bit?

Euro zone muddles through with very weak domestic demand, and curves perhaps flattening as markets start to believe the ECB will fund it all indefinitely?

China slows as a result of fighting inflation?

Same with Brazil?

Maybe India as well?

Commodity price slump with demand flattening?

Fed low forever?

Stocks in a long term trading range like Japan?

US term structure of interest rates gradually flattens to Japan like levels?

Relatively weak demand gradually brings on alternatives to over priced crude?

Merry Christmas!!!

The last I saw domestic gasoline consumption has been looking modestly higher, even as prices are up.
Here’s how I see how that works out:

Assumptions:

1. The US bill for imported crude goes up and consumption doesn’t fall.

2. US consumers have less to spend on other things.

two possibilities:

A) Iran and Saudia Arabia use their incremental winnings to buy US jets and nuclear reactors from US companies.
a) US jobs and paychecks in jets and nukes business increase by the same amount as the oil price hike, so
b) US domestic consumption remains constant.

Summary of results:

More US people working more hours and consuming the same in total.
As a whole that’s a negative outcome.

More exports for the same amount of imports.
Also a negative- declining real terms of trade.

It’s a case of ‘looks good’ (a few more jobs, exports up)
but feels bad (working harder for the same consumption).

Other possibility:

B) Iran and Saudi Arabia don’t spend the dollars
a) Domestic (non oil) consumption falls, so
b) Output and employment falls

This is a case of looks bad and feels even worse.

What actually happens seems to be somewhere in between?
Crude prices up, exports up, and jobs flat.

Down a bit for the month, certainly no pressure on supply, but still trending modestly upward.

This is a reasonable indicator of net world demand, as the Saudis continue as swing producer setting price and letting quantity adjust.

Looks like net demand is slowly using up Saudi excess capacity.
But there’s a long way to go.

No telling when they might alter prices- it’s a political decision on their part.

I looked into the North Dakota State Bank and didn’t see any reason that would make much of a difference, so I check out their ‘export’ industries:

https://www.dmr.nd.gov/oilgas/stats/DailyProdPrice.pdf

https://www.dmr.nd.gov/oilgas/stats/gasprodsoldchart.pdf

https://www.dmr.nd.gov/oilgas/stats/DrillStats.pdf

all found here:

https://www.dmr.nd.gov/oilgas/

And all with under 500,000 people.

With the saudis setting price and letting quantity adjust looks like net demand isn’t going anywhere

Europe got by the ‘rollover event’ without drama.

German unemployment down a tad and muddling through.

Euro solvency issues (slowly) fading with ECB in control?

OPEC June Crude Output Down 157,000 Bbl/Day to 29.23 Mln

I agree the guilty need to be identified and punished, but that doesn’t stop with those responsible at BP, their suppliers and contractors, or the regulators who failed us. It runs much deeper, extending to our failed political process.

The financial crisis is analogous. The criminals need to be tracked down and prosecuted, as Bill Black did in after the savings and loan crisis. But the financial architecture/institutional structure that set it all up is at least equally at fault, as is the political process that created that institutional structure, as per my response to Roger.

I do think costs and losses should be paid for by BP, even if that means insolvency proceedings and 100% losses to shareholders and creditors.

I consider this a no bailout zone.

And any drop in aggregate demand/increase in unemployment should be ‘offset’ with whatever size tax cut and/or revenue sharing is necessary to sustain full employment.

And adding to Rogers idea again, my proposal for an $8/hr job for anyone willing and able to work should include those jobs for anyone wanting to join in the clean up efforts. (Not to say that clean up efforts should be limited to those workers.)

Punish BP or . . . ?

By Rodger Malcolm Mitchell

Those rotten scoundrels have ruined our oceans and our shores. They should pay not only for the cleanup, not only for the jobs lost because of the pollution, not only for the damage, but they even should pay for jobs lost because of President Obama’s decision to stop deep-water drilling. BP should pay, pay, pay until they bleed, then pay some more. These people must be held accountable.

Phew! Now I feel better.

But, wait. What is BP? It’s a legal description, nothing more than words on a piece of paper. It has no physical existence. You can’t punish BP any more than you can punish a law or a page of sheet music. BP, as a legal entity, neither caused, nor can cure, the oil spill. That disaster was caused by people, and it is people, not a piece of paper, who must be held accountable.

So the question becomes, which people should be punished? BP has a huge number of employees, the vast majority of whom had nothing to do with the oil spill. It has a huge number of innocent shareholders, a huge number of innocent suppliers, a huge number of innocent oil users. In some ways, you and I are part of BP, because as users of oil and oil-related products (i.e. all products) we are affected by what its employees do.

Which of those people should be “held accountable”? What if holding all of BP “accountable” means thousands of innocent people will be fired, or innocent suppliers will be put out of business, or all of us will have to pay more for our oil and gas, or all of us who hold BP stock, either directly or as part of a fund, will lose? What if punishing BP has an adverse effect on the whole economy. Is that wise?

Somewhere between vengeance and economic reality lies the answer. Punishing BP, as a company, punishes all of us who already are suffering from the gusher. And though widespread vengeance may feel good, there is a “cut-nose-spite-face” aspect to be considered. So, what can be done to help prevent a repeat?

First, let’s identify the people specifically responsible. Certain BP employees. Certain employees of BP suppliers. The guys who mixed and poured the rotten cement that didn’t hold.

And, with all the focus on BP, let’s not forget those government employees who failed equally. I’m talking about the people who, after having been bribed with nice gifts, so readily approved all of BP’s actions.

Yes, we should fine, fire, even jail all the responsible individuals. That would help prevent future problems. Of course, that doesn’t pay for all the efforts to cure the situation nor for all the losses. Who should pay the billions for that?

If you really care about the economy, and are not just flailing out in retribution, you would agree the economically wise approach would be for the federal government to pay. That way, the guilty would be punished, the innocent spared and the economy stimulated.

Government pays = people benefit. BP pays = people pay.

So what’s your choice: Vengeance or money in your pocket?

warren mosler says:
June 15, 2010 at 7:15 am

Well stated!

And we do know we all are responsible.

Our government regulators failed us much the same way they failed us in the financial crisis.

We have failed to create the alternative transportation (including user friendly public transportation, alternative fuels, incentives to reduce our travel needs, etc.) that could cut our use of crude oil by 50% or more, removing the need and incentives for what we know is dangerous offshore drilling.

We should know that the strategy of rushing to use up our domestic oil as soon as we discover it, rather than saving it for later when the rest of the world has used up theirs, is not in the best long term interest of our children and grand children.

We have elected representatives at all levels based on most everything but the wisdom of proposed agendas, often due to incentives we allow to remain in place regarding campaign finance, the power of special interests, and the incentives in place for our two party system to deliver candidates on criteria unrelated to their capabilities to provide the leadership on these critical issues.

Don’t get me started!

Thanks!

OPEC (and mainly the Saudis) is the only entity with excess capacity, so it is necessarily price setter. Specifically, they post prices to their refiners and who order all they want at that price. They don’t sell in the spot markets. See highlighted text below. ‘Balancing supply and demand’ is price setting.

The higher prices, particularly in euro, are functioning as a drag on the oil importing economies and also starting to show up in their inflation reports, complicating the decision process of the world’s central bankers. The combination of low aggregate demand and cost push price pressures is always problematic with regards to interest rate policy.

Urals Discount Widens as Russia Boosts Output: Energy Markets

By Christian Schmollinger

May 4 (Bloomberg) — Russian and Mexican oil is trading at growing discounts to U.S. and U.K. crude benchmarks as production by nations outside OPEC reaches a record.

Russia’s Urals for loading in the Mediterranean trades at $2.22 a barrel less than Britain’s Brent crude, compared with a premium of 3 cents a barrel on July 24. The discount between Mexico’s Maya grade and West Texas Intermediate was at $10.82 a barrel on April 30, near the widest in 17 months.

Rising output from Russia and Mexico will push non-OPEC supplies up 1 percent this year to an average 52 million barrels a day, according to the International Energy Agency. At the same time, quota violations among members of the Organization of Petroleum Exporting Countries means global production will increase at a time when the need for oil is diminishing.

“Inventories are growing and non-OPEC supply is expanding and OPEC continues to leak,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “Market bulls should be concerned about the supply overhang.”

The U.S., Mexico, China and Russia have been responsible for most of the growth, boosting output for the past five consecutive quarters, according to an April 27 research note by Barclays Capital. Non-OPEC production reached a record high 49.6 million barrels a day in March, according to data from Energy Intelligence Group.
OPEC Less Needed

The IEA lowered its demand estimate for OPEC, which produces 40 percent of the world’s oil, by 200,000 barrels day to an average of 28.8 million barrels a day to balance supply and demand. The group currently pumps 29.2 million a day, according to Bloomberg data.

OPEC’s spare capacity levels have ballooned to 5.645 million barrels a day in April after falling as low as 2 million in July 2008, when crude hit a record $147.27. The group can produce a total of 34.84 million a day and may add 12 million barrels by 2015 by opening 140 new projects, Secretary- General Abdalla El-Badri said in February.

Russia, the world’s largest oil producer, pumped 10.14 million barrels a day in March, a post-Soviet Union high, according to official data. Mexico exported 1.33 million a day in March, the highest since January 2009, according to data from Petroleos Mexicanos.

U.S. production surged during 2009 and into this year as output returned from post-Hurricane Ike shut-ins in September 2008. The country has pumped an average of 4.482 million barrels a day in the first four months of 2010, up 6.6 percent from the average in 2006 and 2007.

Price Pressure

“If the positive momentum carries into the rest of 2010 and starts filtering through non-OPEC output views for 2011, this could result in a more significant source of downward price pressure along the curve,” said Barclays Capital analyst Costanza Jacazio in the note.

Crude oil for June delivery was at $85.94 a barrel at 10:28 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange, retreating from yesterday’s intraday peak of $87.15, the highest since Oct. 9, 2008.

“The pricing has been driven by the expectations of a tighter market over the long-term and the market has put aside the near-term supply overhang,” said Purvin & Gertz’s Shum.
The non-OPEC “momentum raises the crucial question of whether or not it is sustainable,” said Barclays. “If it fades quickly, as we expect, this will likely have limited implications for oil balances and prices, as OPEC stands in a position to handle a short-term rise in non-OPEC output by simply postponing any further increase in volumes.”

Cost push inflation coming in via the fx window?

With supply following demand, as with any monopolistic arena, it looks like the world crude oil balance remains very much neutral leaving the Saudis in full control as swing producer where they set prices and let quantity adjust to market demand.

Stable crude prices with 0 interest rates, high excess capacity and low aggregate demand should keep inflation at bay indefinitely, with productivity increases making deflation the greater risk.

[Skip to the end]

A modest rise in consumption for next year means the Saudis/OPEC remain firmly in control of price.

Global oil consumption is likely to average 86.1 million barrels a day in 2010, the IEA said in an Oct. 9 monthly report, raising next year’s forecast for a third consecutive month. The agency expects demand of 84.6 million barrels a day this year. The IEA’s next monthly report will be issued on Nov. 12.

It will be up to members of the Organization of Petroleum Exporting Countries to satisfy the bulk of the world’s increasing need for oil as conventional production in countries outside the group peaks next year, the IEA said.

“Most of the increase in output would need to come from OPEC countries, which hold the bulk of remaining recoverable conventional oil resources,” the agency said in the report.

[top]

[Skip to the end]

No signs of a recovery here yet.

Yes, there’s conservation, efficiency gains, and some substitution but a lot of it is people driving to work.

[top]

The Levy Economics Institute of Bard College
Public Policy Brief
No. 103, 2009

FINANCIAL AND MONETARY ISSUES
AS THE CRISIS UNFOLDS
James K. Galbraith

Beginning page 9:

Warren Mosler picked up on the theme of human resource
utilization and full employment in a particularly useful way.
Mosler suggested that stabilization of employment and prices is
akin to a buffer stock—something to which surpluses can be
added when demand is low, and drawn down when it is high.
Normally, a buffer stock works on a price signal: the authorities
agree to buy when market prices are below the buffer and to sell
when they are above. In this way, prices stabilize at the buffer
price. The Strategic Petroleum Reserve is potentially a good
example, though political decisions have prevented it from being
used as it should be.

The problem with most commodity buffers is elasticity of
supply: create a buffer stock in wool, and suddenly it pays to raise
sheep. But this problem is cured if the buffer stock is human
labor, which cannot be reproduced quickly. A program that provides
a public job at a fixed wage for all takers functions exactly
like a buffer stock, stabilizing both total employment and the
bottom tier of the wage structure. People can move in and out of
the buffer as private demand for their services varies. Meanwhile,
the work done in the buffer—the fact that people are working
rather than receiving unemployment insurance—helps keep the
buffer “fresh.” Private employers like hiring those who already
work, and will prefer hiring from the federal jobs program rather
than from among those who remain unemployed.

The point is: the problem of unemployment is easily cured,
without threat of inflation. It is merely sufficient to provide jobs,
at a fixed wage, to whoever wants them, and to organize work
that needs to be done. Such work should be socially useful and
environmentally low impact: from child care to teaching and
research, to elder care to conservation to arts and culture. Where
possible, it should contribute to global public and knowledge
goods. It should compete as little as possible with work normally
done in the private sector; for instance, by serving those who
cannot afford private sector provision of teaching and care. The
point is not to socialize the economy but to expand the range of
useful activity, so that what needs doing in society actually gets
done. The barrier to all this is simply a matter of politics and
organization, not of money.

The effect, nevertheless, would be to raise all private sector
wages to the buffer-stock minimum (say, $8/hour in the United
States), while eliminating the reserve of unemployed used to
depress wages in low-skilled private sector industries. There will
be no pressure to raise wages above the buffer threshold, since private
employers providing higher wages can draw on an indefinitely
large workforce willing, for the most part, to move from the
buffer to the private sector in return for those wages. Hence, the
program is not inflationary. There is therefore no excuse for waiting
a year or two years on the assumption that unemployment
will cure itself, and every reason to believe that at the end of such
a policy of “hopeful waiting,” the discovery will be made that the
problem has not been cured.