What Happens If Oil Hits $100?

4 Comments on "What Happens If Oil Hits $100?"

Antius on Thu, 17th May 2018 10:20 am 



Bad news for Tesla:
https://www.zerohedge.com/news/2018-05-17/tesla-will-need-over-10-billion-2020-goldman

The company is burning through $1.5bn per year just to stand still. The problem is that the BEV that they are selling just isn’t a competitive product when weighed against the alternatives. It is more expensive, has poorer performance and recharging adds a complication that does not exist for a regular petrol powered car. On top of that, it has to compete with other electric car manufacturers and hybrid vehicles.

My own view is and always has been that pure EVs will never be competitive unless they can be grid connected in some way. The world is full of electric trains and trams. All of them rely upon a direct grid connection for power supply, i.e. a catenary or third rail. Electric road vehicles will become a practical proposition when similar infrastructure is introduced on main roads. This allows a battery one tenth of the size with a tenth the capital cost; it halves the vehicle mass and roughly doubles overall energy efficiency.

At some point, I expect Tesla to either fold, or to be bought up at a greatly reduced price by Ford, Chrysler or GM.

Antius on Thu, 17th May 2018 10:40 am 



” Bloomberg’s Tina Davis explains why higher oil prices won’t hurt the global economy as much as it has in the past.”

Hmmm. Global GDP is 60% higher than in 2005, but global oil demand is only about 30% greater. So in that limited and simplistic sense, she is correct.

But this masks the reality that debt levels in importing nations are generally much higher than they were in 2005 and interest rates are creeping up. Also, inequality has exploded since 2005. Wages for most people have either stayed static or improved very marginally, whilst the cost of living has increased disproportionately. The American middle class is saving only about 3% of income. If oil prices increase significantly, that 3% will disappear rapidly.

A large part of the reduced oil intensity stems from the increasing concentration of wealth, which tends to reduce oil demand, as a much greater proportion of consumption by the wealthy is in the form of services. So in that sense, the rich are more oil efficient. But the situation is clearly unstable, as the wealthy depend upon consumption of goods and services from the middle and working classes to provide their income. The economy is now increasingly top heavy and a sustained increase in oil prices undermines the bottom and middle of the pyramid, in a way that makes it vulnerable to systematic collapse. Increasing income inequality and rising debt, makes us more vulnerable than in 2008, not less.

MASTERMIND on Thu, 17th May 2018 10:51 am 



Every one cent increase in gasoline prices reduces household purchasing power by $1 billion. We use about 140 billion gallons of gasoline a year.

-Goldman Sachs

ADAm on Thu, 17th May 2018 7:24 pm 



I believe similar comments were made during the run up to the 07/08 crisis. The idea that economies were decoupling from physical resources. We saw how that worked out!

I see it as more financialization and service economy leveraged on stagnating/declining fossil fuel availability.

As oil prices creep up (spike maybe) they are going to pull money from other parts of the economy, including debt service.