How Economy Could Survive Oil At $100 A Barrel(Wal-Mart effect? nervous cheerleading)

Cattlenetwork ^ | 09/27/07 | Daniel Machalaba, Shai Oster, Susan Carey and Mike Spector

[TigerLikesRooster]

I hear this article was featured in WSJ. Despite the urge for further cheerleading, I can sense a palpable anxiety from the article. The authors are just hoping that we can somehow sneak past the looming storm, pinning their hope on Wal-mart effect, and oil countries' "expected" spending binge.

[mysterio]

$100 a barrel oil is a guaranteed recession.

If not worse.

[Spktyr]

OPEC is actually pretty desperate to get the price of oil back down to about $50/bbl or so (IIRC). The problem they see is that an *awful* lot of alternate oil extraction processes become economically viable beyond that point. At $100/bbl, almost *all* the alternatives become economically viable.

And once we shift away from OPEC oil because the alternatives are suddenly viable, we won’t be coming back. Neither will all the other customers that leave. Supply and demand will ensure that these alternatives’ prices continue to drop, and we won’t be beholden to OPEC or the ME any more.

OPEC is more scared of that than anything else.

[TigerLikesRooster]

I concur. The article is like yelling “Don’t panic!” in a crashing airplane.

[TigerLikesRooster]

Well, that means that, in a coming recession, OPEC goes down for good, which can be a nice consolation prize.:-)

[dennisw]

I read this previously at the WSJ. What struck me was no mention of the ruinous trade deficits from the “Wal Mart effect”. What dopey thinking. I rate this article a 0 out of 10.

Wishful thinking as you put it. Quite infantile since the last month has the USDollar crashing due to trade deficits.

[familyop]

In my remote area, most people (mostly working class) continue to drive daily over 60 miles each way through mountainous terrain to the city for the purpose of avoiding boredom. After the neighbors arrive home during the evenings, the bear, attracted by junk food wrappers and residue, break into their vehicles.

[TigerLikesRooster]

Maybe they can sell bear skin to pay for gas.:-)

[TigerLikesRooster]

Now that you mention it, this article sounds like a term paper for a college economic class.

[TigerLikesRooster]

Correction: economic economics class

[familyop]

"Maybe they can sell bear skin to pay for gas.:-)"

There are probably enough bear (or bears) now to make many barrels of bio-fuel. ;-)

[Caipirabob]

Burn Democrats for fuel instead? If you can get past the smell...

[mdmathis6]

The fear of 100 dollars a barrel must be affecting your spelling!....;)

[newfreep]

I love the smell of burning democrats in the morning!

[Thermalseeker]

OPEC is more scared of that than anything else.

Interesting take on the situation. I hope that the OPEC powers that be are business savvy enough to realize this artificially high oil price is going to ultimately lead to alternative energy sources. Keeping the price of oil high is ultimately going to lead to their demise. History seems to show that OPEC is operating from more of a thug mentality than good a good business model. I hope you are correct in your assessment.

[ByteMercenary]

“... U.S. households today spend less than 4% of their disposable income at the pump, vs. over 6% in 1980.”

I strongly question that statement. My personal number is close to 10% but I have four vehicles and two teenage drivers. In any case, I’ll bet anyone with more than one vehicle is well over 4% also, unless you walk to work.

I also agree that OPEC would rather not have oil at $100bbl because of alternative fuel viability.

[theBuckwheat]

The higher the price of crude drifts and lurches, the more alternatives and substitutes will be economically viable and be able to attract capital investment. This is an iron law that most hand-wringers ignore.

[kittymyrib]

This could be a meager Christmas season for retailers. Not only are millions of consumers tapped out and their credit cards reaching their limits due to escalating gas and food prices, but no one is excited about buying dangerous cheap toys, clothing, etc. from China or plunking down cash they don’t have for over-priced electronic gadgets.
The materialistic buying frenzy to celebrate the Lord’s birth has always been unseemly. This may be a good time to pull the plug on it and think of ways you can show your children and grandchildren you love them by spending time with them (fishing trips, going to a ballgame, taking a trip to visit a relative in a distant place with them) instead of buying them stuff that will be broken or thrown in an over-stuffed closet after the holidays, leaving them with no memories and you with a credit card bill to pay.

[SampleMan]

Iran is driving the price of oil. Oil will continue to rise until Iran is settled because fear of supply constraints puts pressure on demand in the futures market.

For those who don’t understand how we can not have an immediate shortage and yet have increased demand, think of what would happen to the price of food if it were announced that there was a 50% chance than an asteroid would hit in three years. The futures price would jump 100-500% and the current price would follow (as it always does).

When the Iran issue is settled, oil will drop to $40-50 within six months. If the oil states respond to the cut in revenue by boosting production, it will drop even further.

[varyouga]

Good. I’d gladly pay $4 for alternative fuels made in the USA and give OPEC the finger.