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Page added on May 24, 2015
Why economists were totally wrong about cheap oil
If there was one thing most economists agreed on at the start of the year, it was this: Plunging oil prices would boost the U.S. economy.
It hasn’t worked out that way.
The economy is thought to have shrunk in the January-March quarter and may barely grow for the first half of 2015 — thanks in part to sharp cuts in energy drilling. And despite their savings at the gas pump, consumers have slowed rather than increased their spending.
At $2.74 a gallon, the average price of gas nationwide is nearly $1 lower than it was a year ago. In January, the average briefly reached $2.03, the lowest in five years.
Cheaper oil and gas had been expected to turbocharge spending and drive growth, more than making up for any economic damage caused by cutbacks in the U.S. oil patch.
Consider what Federal Reserve Chair Janet Yellen said in December: Lower gas prices, Yellen declared, are “certainly good for families. … It’s like a tax cut that boosts their spending power.”
Other experts were more direct: “Lower oil prices are an unambiguous plus for the U.S. economy,” Chris Lafakis, an economist at Moody’s Analytics, wrote in January.
So what did they get wrong?
It turns out that the economic effects of lower energy prices have evolved since the Great Recession. Corporate spending on drill rigs, steel piping for wells and railcars to transport oil has become an increasingly vital driver of economic growth. So when oil prices fall and energy companies retrench, the economy suffers.
Getty Images/Andrew BurtonA gas flare is seen at an oil well site. Gas flares are created when excess flammable gases are released by pressure release valves during the drilling for oil and natural gas.
The drilling boom that erupted in 2008 has boosted U.S. oil production nearly 75 percent and natural gas 30 percent and made the United States the world’s largest combined producer of oil and natural gas. Energy production contributes about 2 percent to economic output, up from less than 1 percent in 2000.
Yet in recent months, industry activity has dropped more sharply than predicted.
“So far, it is fair to say that we have been hurt more than helped,” Lafakis acknowledges now.
During their policy meeting last month, Fed officials grappled with the changing impact of cheaper oil, according to minutes of the meeting released Wednesday. Several policymakers said the economic drag from drilling cutbacks could be “larger and longer-lasting than previously anticipated.”
They also worried that the weakness in consumer spending, despite cheaper gas, suggested that Americans might generally be more reluctant to spend than assumed.
Some economists are reconsidering assumptions they use to forecast the economy.
“The benefit of lower oil prices is less pronounced than, say, 10 years ago,” says Jim Burkhard, a researcher at IHS Energy. “You’re taking a big engine of economic activity and cutting it sharply.”
REUTERS/Lucy NicholsonA general view of Tesoro’s Los Angeles refinery in Los Angeles, California October 10, 2014.
Lafakis and many others still expect consumers to spend much of their savings from cheaper gas, powering faster growth in the second half of the year. Economists say it can take up to six months for people to spend unexpected windfalls. But any gains won’t likely be enough to counter the anemic start to the year.
Moody’s Analytics expects the economy to expand just 2.6 percent this year, down from an earlier forecast of 3.3 percent. (The downgrade is also due in part to a stronger U.S. dollar, which has depressed exports.)
For families, the drop in gas prices was an unexpected gift. The government has estimated that cheaper gas will save a typical household $675 this year.
Yet still scarred by the recession, many remain reluctant to spend freely. Analysts also note that Americans are less likely to spend extra money if they think the gain is temporary.
“Consumers have been very reluctant to spend (savings from cheaper gas), because they view that as fleeting,” says Greg McBride, chief financial analyst at Bankrate.com.
Andrew Burton/Getty Images
Consumer spending rose at an annual rate of just 1.9 percent in the first quarter, compared with the previous quarter’s 4.4 percent. Much of the cash saved at the gas pump was put away: The U.S. savings rate reached its highest point in more than two years. Wal-Mart and Target have confirmed that their sales aren’t getting much lift from cheaper gas.
For Vince Cimilluca, a 28-year-old video editor in Edison, New Jersey, lower gas prices haven’t changed his finances much. He’s struggling to pay $800 a month in student debt while saving for a home. He’s seen gas prices gyrate and doesn’t trust they’ll stay low.
“The extra money that I have, I save,” Cimilluca says.
For the economy, the technological breakthroughs that allowed the energy industry to power growth now help explain the slowdown. As the 2008-09 recession ended, companies used hydraulic fracturing, or fracking, to unlock underground reserves. Oil, at $100 a barrel or more, made such efforts profitable.
Anatolii Stepanov / REUTERS
Jim Burkhard of IHS Energy estimates that U.S. and Canadian energy companies increased investment in production from $98 billion in 2005 to $363 billion last year. U.S. oil and gas jobs nearly doubled to 537,000. In addition, jobs were added at steel mills, at sand pits to process sand for fracking and at restaurants and service companies in areas with new-found oil and gas fields, like North Dakota and Pennsylvania.
But the industry’s breakneck growth was thrown into reverse by a 50 percent drop in oil prices from June through January. CEO Doug Suttles of Encana Corp., a Canadian-based driller that operates in the United States, says the pullback in drilling “happened more rapidly than I’ve seen in 32 years.”
As recently as December, Suttles says, experts had forecast that the number of rigs would drop by a third in the spring from a year earlier. Instead, it’s plunged by more than half, according to Baker Hughes, an oilfield services firm.
Spencer Platt/Getty ImagesA truck used to carry sand for fracking is washed in a truck stop on February 4, 2015 in Odessa, Texas.
That’s led companies like U.S. Steel to temporarily close factories that make the steel pipe used in oil wells. Texas-based Superior Silica Sands, which makes fracking sand, has canceled the building of a factory and has slashed capital spending plans.
Investment in wells and production facilities collapsed nearly 50 percent last quarter, the government says, and cut the quarter’s annual economic growth by three-quarters of a percentage point. Goldman Sachs estimates that three jobs will be lost in other industries for every position shed by energy companies as laid-off workers spend less.
That trend is painfully evident in Texas, which lost 25,400 jobs in March, the most since 2009. Many were in mining, which includes oil and gas. But most of the losses were indirect: As laid-off workers cut spending, retailers cut 6,600 jobs.
Cheaper gas has hardly been a comfort to Orlando Garza, 34, who lives near Corpus Christi, Texas, and was laid off from his job in February as a well site leader.
“I’ve had to cut back tremendously,” Garza says. “I tell my kids, ‘I don’t have a job, so I can’t buy it.'”
53 Comments on "Why economists were totally wrong about cheap oil"
Apneaman on Sun, 24th May 2015 4:23 pm
Why economists were totally wrong about cheap oil
Because they are economists.
Apneaman on Sun, 24th May 2015 4:31 pm
Economics – the only branch of the so called social sciences that never self corrects-never admits a wrong-never predicts anything except growth-never predicted even one crash-never makes correction to it’s mistakes. It’s absolute, just like every other religion.
FIRST PRINCIPLE: “Economics” is an intellectual Trojan Horse with political agendas hidden within known-false assumptions.
The political conclusions follow logically from the assumptions, so if you accept those known-false assumptions,
then you also accept those hidden political agendas.
http://jayhanson.us/e.htm
GregT on Sun, 24th May 2015 4:32 pm
Hmmm Apnea,
Because they are eCONomists.
steve from virginia on Sun, 24th May 2015 5:15 pm
The oil companies didn’t do the customers a favor by dropping prices, the prices collapsed because customers are broke and cannot afford to bid prices higher. This is an ongoing structural issue that is neither addressed nor fixed by policy.
Customers are broke b/c using fuel does not offer a return, what must pay is customer borrowing. What’s taking place right now under economists’ noses is a credit collapse.
There is no difference between the price decline of oil starting in 2014 than the price decline in housing that began in 2007. The reason for the current decline is also identical – credit saturation as customers cannot borrow any more against questionable (or non-existent) collateral.
There is also no difference between the establishment’s response to oil price decline now and real estate price declines in 2007 … and stock price declines in 2000: denial and blame fixing (Saudi Arabia, Russia), lies and more demands for lending to/by giant banks.
The big difference between now and 2008 is that the establishment could validate the high price of most collateral by purchasing it. Now … they cannot. Our collateral is worthless and the establishment has spent itself on previous efforts to maintain the status quo.
Nony on Sun, 24th May 2015 5:19 pm
I think the problems with the economy are more related to government (cheap finance, bailouts, taxes, etc.) than they are to energy prices.
I was thinking about this earlier. Seeing people like Rock or Shallowsand talking about how the economy has not benefited much from the lower gas prices. I think you have to look at the flip side then. You can’t claim that high prices damage the economy and not also say that low(er) prices help it. Have to be consistent.
Probably the real answer is that energy cost has a role to play as a factor of production, but the economy is not as dependant as many people here like to think. E.g. the ratio of per capita GDP to per capita oil use in the US has dropped steadily over the decades.
Nony on Sun, 24th May 2015 5:22 pm
Steve from Virginia: “The oil companies didn’t do the customers a favor by dropping prices, the prices collapsed because customers are broke and cannot afford to bid prices higher.”
If the price drop were from reduced demand than volume would have dropped as with 2008. This did not happen. It’s a supply issue. IT’s a popping of a bubble. It’s removal of expectations of cartel action. Pretty much the things that Hamilton underplayed in his “hundred dollars here to stay” article. (And still poo-pooed them when criticized.)
Davy on Sun, 24th May 2015 5:26 pm
Steve, base hit. NOo, 2 strikes
joe on Sun, 24th May 2015 5:32 pm
Why is the US not growing? China is not growing. OPEC are not going to stop flooding the market with oil nobody wants, that equates to dollars nobody wants. QE has caused a stock market bubble many times the size of the last one, yet the majority of people cannot spend as they are still paying debts from the last bubble. The only way to burst the current bubble will be when the FED increases the cost of debt and demands it’s loans back from the banks, which surely it will do if shale oil and fraking debt sink hole is stopped by OPEC. ALL the major economies are running the the printers at full speed just to stand still, yet they are going mad looking for energy and ‘ALTERNATIVE’ energy to help global warming. Something is not adding up.
Plantagenet on Sun, 24th May 2015 6:01 pm
Most of the growth seen in the US over the last six years has been in Texas and North Dakota—thanks to the shale oil boom. Now the the shale boom is over, thanks to the oil glut, Texas and North Dakota are slowing down and the rest of the US remains in the same economic doldrums its been in ever since obama took office.
Makati1 on Sun, 24th May 2015 6:56 pm
joe, I just read an article that China is asking the KSA for MORE oil and they cannot supply it. If you rely on oil industry ‘news’ or UFSA sourced ‘facts’ you are never going to get the real situation. It’s true that Western countries are contracting, and have been for a long time, but there is another six billion consumers that are NOT part of the West.
GregT on Sun, 24th May 2015 7:52 pm
” the US remains in the same economic doldrums its been in ever since obama took office.”
What about the economic doldrums that the other 95% of the world is facing Planter? Obama’s fault as well?
Or could it possibly have something to do with a 300% rise in oil prices? Hmmm.
GregT on Sun, 24th May 2015 8:10 pm
“You can’t claim that high prices damage the economy and not also say that low(er) prices help it.”
Oil prices aren’t low Nony. They are still over twice as high as inflation adjusted prices that have caused recessions for the last century.
“I was thinking about this earlier.”
Now that’s funny. You call that thinking Nony?
Plantagenet on Sun, 24th May 2015 8:48 pm
@Gregter
I know you can’t do math, but maybe you can fix that with a remedial class. You made two math howlers in just your last post:
1. The price of oil has dropped 40-50% over the last year—not gone up 300% as you claim.
We’re in an oil glut right now, remember?
2. Your claim that “the other 95% of the world” is in the same doldrums as the USA is silly—-Both India and China grew at over 7% last quarter. —DO the math…that about 30% of the world growing quite nicely while the USA GDP will likely be revised to negative growth for the first quarter.
Cheers!
antaris on Sun, 24th May 2015 8:56 pm
Remember Plant, the O inherited W’s mess. O didn’t create it .
Apneaman on Sun, 24th May 2015 9:06 pm
Lil Planty, using nonsensical econ 101 terms like “negative growth” is like putting an “I’m an idiot” sign on your back. Keep up the bad work.
GregT on Sun, 24th May 2015 9:14 pm
@planter
If you aren’t willing to tell the truth, why even bother posting?
Plantagenet on Sun, 24th May 2015 9:25 pm
@antaris
The excuse that “O inherited W’s mess” is getting a bit stale.
After 7 years of being President the economic weakness and doldrums in the US and the international chaos that we see around us is now O’s mess that Hillary will soon be inheriting.
Cheers!
Plantagenet on Sun, 24th May 2015 9:27 pm
@gregter
I can’t imagine what you are complaining about? I simply pointed out your math errors, which in turn led to misstatements of fact.
I’m not saying you are lying about the math—I’m saying you didn’t calculate things properly, and then I calculated them out for you to help.
Cheers!
GregT on Sun, 24th May 2015 9:38 pm
@planter
If you aren’t willing to tell the truth, why even bother posting?
Plantagenet on Sun, 24th May 2015 9:43 pm
Is there some specific thing I’ve written whose veracity you dispute?
Or are you just being a sore loser because I corrected your math errors?
antaris on Sun, 24th May 2015 10:19 pm
Plant we are on a Oil Depletion website. Unless you are 88 like my mother, the main helping factor that you were conceived was because of oil. W , O and whomever gets in next will be fighting the oil depletion problem. Oil led to 7 billion people living and lack of oil will leed to billions dying. O will retire just like W. If the next pres is an R instead of a D and things still get worse will you continue to blame the standing pres?
GregT on Sun, 24th May 2015 10:23 pm
2009 Obama becomes president
2009 US GDP growth -2.8% *****2014 US GDP growth +2.4% *****for a change of +5.2%
2009 Chinese GDP growth +9.2% *****2014 Chinese GDP growth 7.2% *****for a change of -2%
2009 Indian GDP growth +8.5%*****2014 Indian GDP growth 4.8%***** for a change of -3.7%
https://www.google.ca/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_kd_zg&idim=country:CHN:IND:USA&hl=en&dl=en
Perk Earl on Sun, 24th May 2015 10:27 pm
“Consumer spending rose at an annual rate of just 1.9 percent in the first quarter, compared with the previous quarter’s 4.4 percent.”
Do you see the problem here?! The angst is over how much spending increases! It’s not increasing enough I guess, yet somehow we are going to wean ourselves off of FF, when in reality we are stuck in Jevon’s Paradox. Any improvement in conservation is more than made up for by growth somewhere in the world.
Growth, growth, and more growth while hurtling up ourselves towards brick walled limits. Now that’s a recipe for disaster.
GregT on Sun, 24th May 2015 10:34 pm
Oil prices have historically averaged below 20 dollars per barrel in inflation adjusted prices from 1985 until 2002. The price ran up from 2002 until 2008 triggering the global financial crisis that we still haven’t recovered from. ( and probably never will) Todays WTI price of 59.86 is more than 300% higher than average inflation adjusted prices going back 100 years.
http://cafim.sssup.it/~giulio/other/oil_price/report.html
GregT on Sun, 24th May 2015 10:41 pm
If you aren’t willing to be truthful planter, don’t bother posting.
Northwest Resident on Mon, 25th May 2015 1:27 am
Nony, you’re my favorite person to disagree with on this site. Hope you don’t mind.
You said: “I think the problems with the economy are more related to government…”
I think most of the major governments in the world are involved in policies designed to compensate for the devastating effects of inadequate energy supply.
Yeah, I know, barrel count is up, for now, but that doesn’t say anything about how much energy is available to power commerce and business.
The energy supply needed to grow the global and national economies out of the doldrums is just not there, not at any price, because what it boils down to is how much energy is needed to extract the same or greater amount of energy.
Cheap and easy oil is long gone, but that is what our modern civilization and infrastructure was built with. Trying to keep our current infrastructure maintained, much less growing, is impossible to do without ever increasing amounts of energy, and that is exactly what we don’t have enough of.
So, the governments compensate by lying (propaganda), manipulating the stock markets, printing “money” to keep the illusion of prosperity alive, but underneath the covers is the same desperate issue that Jimmy Carter mentioned back in the 70’s — we are having severe issues with energy, and those problems are naturally rippling through the economies and governments of the world.
We burned it all up. We devoured almost all natural resources as fast as we could. The result: 7 billion people and counting, expectations far beyond what the planet can provide to so many people, and governments that are terrified to “tell it like it is”.
Apneaman on Mon, 25th May 2015 3:15 am
“We devoured almost all natural resources as fast as we could.”
Sounds like were a malignant cancer.
malignant
adjective
1.
disposed to cause harm, suffering, or distress deliberately; feeling or showing ill will or hatred.
2.
very dangerous or harmful in influence or effect.
3.
Pathology.
tending to produce death, as bubonic plague.
(of a tumor) characterized by uncontrolled growth; cancerous, invasive, or metastatic.
rockman on Mon, 25th May 2015 4:02 am
“Most of the growth seen in the US over the last six years has been in Texas and North Dakota”. And thus the false spin put out in recent years about the “recovery”. I haven’t seen the stat lately but for several years Texas had added about as many jobs as all the other states combined. Obviously the drilling boom was a factor. But collaterally other portions of the Texas also grew.
So the public was feed propaganda: removing the drilling boom and the national numbers would look that good. Remember those high oil prices also injected a lot of money into our economy: about 20% of all the oil revenue in Texas (and N Dakota) went to private mineral owners and thus greatly increasing purchase power…lots of new pickup trucks bought. Lumping those two states into the NATIONAL AVERAGE created a false picture of the country’s economic condition.
And now much of that two-state growth hormone has been quickly removed from the mix. In time lower prices may eventually increase the economy of the rest of the country but it would be at a much slower rate then the loss. So something of a “perfect storm” for slipping into a national slump: losing the oil patch boost very quickly combined with a very slow response of the rest of the country from LOWER oil prices…not LOW oil prices.
shortonoil on Mon, 25th May 2015 8:55 am
OOIP, for the the entire planet, was estimated to be as much as 4,200 Gb by the USGS. Only about 40% of the original resource will ever be usable; the remaining 60% is of too low a quality to be of much practical significance. While the world has been pumping on the usable 40%, the overall quality of oil has been falling. Producers have been constantly extracting the best. What remains is oil that is barely able to power the world. Since 38% of the world’s economy is powered by petroleum, when petroleum losses it ability to provide that power the other fuels would have to increase their contribution by 62% to compensate. That is not happening.
We projected the decline in crude prices more than a year ago:
http://www.thehillsgroup.org/depletion2_022.htm
We also commented that the decline in price would have little, or no positive impact on the economy. Price can no longer be used as a metric to appraise the impact of petroleum’s quality decline. Economists are toying with numbers that are losing their significance, as the impact of petroleum is losing its. The world’s economies are not going to go zooming off into a new period of growth, and prosperity. The quality of resources needed for that to happen no longer exists.
http://www.thehillsgroup.org/
Davy on Mon, 25th May 2015 9:52 am
What Short said and economies will enter a period of entropic decay from oil’s quality decline. This is the key to understanding the bumpy plateau/descent concept. We have a dynamic global system. This system requires growth. The reason it requires growth is the financial system that gives liquidity to the just in time production and distribution to all vital support for our delocalized locals.
We have a global system now with all nations dependent. There is no longer any decouple except for the smallest and most insignificant countries and even these can only marginally decouple. Growth is needed for a growing population that is expanding at roughly 80MIL year. We need growth to combat pollution and ecosystem decline and failures. We need growth to manage climate instability.
Oil is our foundational commodity because we live in a transportation economy. We have dispersed living arrangements and product production networks. All other products and resource sources require oil to support it in some way. AltE has been cited as a transition energy source. I see no indication that it will ever grow to the scale required to maintain the complexity and energy intensity oil has allowed.
Any reduction to BAU complexity and energy intensity will lead to a collapse because the requirements of growth. Oil is only part of the quality decline. There is also increasing dysfunctional networks and systems. There is aggregate quantity and per-capita quantity decline of other vital resources most importantly food and water.
What we cannot determine from this situation is the timeline nor the direction of this bumpy plateau/descent. This is of immense importance because of the time value to human behavior and activity. We are facing a very dangerous situation. Time is of the essence. The events that unfold are critical to our reactions.
Currently we as a global people are locked into a growth meme by necessity and force. Momentum is towards growth at all levels. The inertia of descent is not yet in firm control although it has slowed growth and progress significantly.
We can initiate the end of BAU with as little as a major change to any of our too big to fail networks, systems, and nation states. We can drift into descent by entropic decay. Either way will be descent and descent is random with dysfunctions, abandonment, and the irrational. The irrational will be the growth meme in the descent mode. The surreal will be some systems being normal others dysfunctional.
This will not end well. There are no chances of a happy ending to BAU. The primary reason is overpopulation and required overconsumption for economies of scale. Our global economy must run at a certain level or the whole system decays quickly. Too much vital local support structures have been outsourced and eliminated in the name of efficiency and economies of scale.
We will eventually fly apart in unknown ways. The system is so complex and large with so many decay processes it is impossible to know details. We can only know generalities. Knowing the generalities we do you can make a difference for yourself at the local level. Location is the paramount importance. Just as a healthy seed will die in poor soil with little moisture your risk management efforts can be wasted.
Now is the time to do something anything. The most important thing you can do is secure food for the short term. There are many other efforts but food and water is paramount. Longer term look towards adjustment and mitigation of your local in a collapse environment. This will likely be a hybrid affair with new and old. This allows many options to put skills to work. Do something folks anything.
BobInget on Mon, 25th May 2015 10:06 am
Nigerian Economy on Verge of Collapse.
Nigeria should become the poster child for a world running out of (useable) hydrocarbon based fuels.
(gasoline and diesel)
Corruption left Nigeria, with Africa’s largest population with too little electrical power generation capacity. This, despite so much natural gas, billions of units need to be flared daily.
So much flaring as to turn night into day in villages
turning air into poisonous fumes.
Nigerians long ago turned to diesel generators for
power generation. Fall in international oil prices
have caused delayed maintenance on the nation’s
refinery capacity. There is so little fuel available,
most ‘gas’ stations are closed.
OPEN the link below for details.
The above is my interpretation. Here’s others.
http://www.bbc.com/news/world-africa-32873349
The shortage means that Africa’s biggest economy is slowly grinding to halt, says the BBC’s Will Ross in Lagos.
Three of the country’s mobile phone companies, MTN, Airtel and Etisalat, have warned that the fuel scarcity could effect their services as they were finding it difficult to supply diesel to the base stations.
Traffic on the roads is also reducing as many fuel stations have stopped selling petrol and there are long queues at places where they are selling petrol, our correspondent says.
Many domestic flights have been cancelled and some international flights are having to land in neighbouring countries to refuel.
Radio stations are also restricting their broadcasts and some have gone off air altogether.
BobInget on Mon, 25th May 2015 10:20 am
Nigeria has turned into a most interesting case study of when a modern economy, almost totally dependent on plentiful oil suddenly runs out of fuels. Virtually NOTHING functions. I, for instance am still waiting for my Nigerian Prince payout due in April.
It appears the fuels shortages are being blamed
on fuels subsidies that will end when the new President takes office.
What unpaid subsidies (stolen) have to do with
insufficient electrical power, the cause of of diesel shortages, in the first place?
It seems Nigerian transportation fuels could be restored over time but will the economy rebound?
Watch for ISIL (Boko Haram) to take advantage of this crisis.
kanon on Mon, 25th May 2015 10:27 am
Davy — “What Short said and economies will enter a period of entropic decay from oil’s quality decline. This is the key to understanding the bumpy plateau/descent concept. . . . The system is so complex and large with so many decay processes it is impossible to know details. We can only know generalities. Knowing the generalities we do you can make a difference for yourself at the local level.”
Since you have put the label “entropic decay” on the situation, perhaps some descriptions and detail could be given. I think the realization that FF energy is lower quality now is important, since people really only see a count of alleged barrels of reserves. It is quite difficult for ordinary people to “connect the dots” but with a concept like entropic decay it may be possible to synthesize a better explanation and thus, a better idea of why “Now is the time to do something anything.”
BobInget on Mon, 25th May 2015 10:28 am
3 Minutes ago: Nigeria’s fuel shortage closes….
http://www.reuters.com/article/2015/05/25/nigeria-mtn-group-idUSL5N0YG14Q20150525
No need guess what happens with no oil.
By Alexis Akwagyiram
May 25 (Reuters) – Chronic fuel shortages in Nigeria brought phone firms, banks and flights to a standstill on Monday, just four days before Muhammadu Buhari’s inauguration as president of Africa’s biggest economy and top oil exporter.
Besides airlines, which could not obtain aviation fuel, phone companies such MTN and domestic banks ground to a halt because the private generators that produce most of Nigeria’s electricity ran out of fuel.
“Services are already degraded and some of our customers are already feeling the impact,” Funmilayo Onajide, a spokeswoman for South Africa-based MTN, said.
Even though it is Africa’s biggest crude producer, Nigeria has to import nearly all its fuel due to old or inadequate refineries. Fuel importers say they are owed money by the government and have shut depots to press their case.
Finance Minister Ngozi Okonjo-Iweala denied this was the case, telling reporters the government had not failed to pay importers and adding they had received money as part of an agreed plan of rolling instalments.
Buhari, a former military ruler who last month became the first opposition candidate to defeat a sitting president in Nigeria, will be installed as head of state on Friday.
Besides MTN, Abu Dhabi-listed telecoms firm Etisalat also reported disruption.
A number of banks including Guaranty Trust Bank and Union Bank of Nigeria shut branches early.
Many travellers were also braced for long delays after airline Arik was forced to ground a number of domestic flights at the weekend and rival carrier Aero said its flights would not operate regularly.
BUSINESS CONDITIONS
The shortages are an early headache for Buhari, who is taking over an economy creaking under the weight of slowing growth and rising inflation.
“Shortages will not only hold implications for output but will also add upward pressure on inflation,” said analyst Cobus de Hart of South Africa’s NKC Independent Economists. “Prolonged fuel shortages may also result in job losses as business conditions deteriorate.”
In the commercial hub Lagos, usually gridlocked streets were relatively clear during the Monday morning rush-hour because many drivers had run out of petrol. Some resorted to buying black market fuel for 500 naira ($2.53) per litre, more than five times the official subsidised price.
“Five hours on the road, the cost of coming to work is too high, the cost of transportation is too high,” said Gbenga Forotimi, a civil servant who struggled to find buses and had to pay extra for a journey that normally takes two hours.
The only people smiling were black-marketeers lining the streets with jerry cans of fuel. “I have sold three 30-litre cans of fuel today at 12,000 naira each,” one salesman, who wanted to be referred to as Samaila, told Reuters. ($1 = 198.0000 naira) (Additional reporting by Oludare Mayowa, Chijioke Ohuocha and Felix Onuah; Editing by Ed Cropley and David Holmes)
Northwest Resident on Mon, 25th May 2015 10:46 am
“…when petroleum losses it ability to provide that power the other fuels would have to increase their contribution by 62% to compensate. That is not happening.”
The other thing that is NOT happening is “other fuels” viably replacing the critical transportation role of oil.
Petroleum may power “only” 38% of the economy, but that 38% includes powering nearly all transportation. Without transportation to connect everything together, the other 62% will fall flat on its face.
The world economy is running on fumes, the motor is choking and sputtering, not all cylinders are firing and the sad and brutal reality is that our high tech industrial civilization is going to end up stranded on the side of the road out in the middle of nowhere, pretty damn soon. From there, humanity will have a long walk to get back to a sense of normality, if the can even make it that far.
BobInget on Mon, 25th May 2015 10:49 am
Please, Kanon, post more often.
I know shortonoil is mistaken but I don’t understand why.
In Turkey today people have to pay $10. US gallon
for gasoline that is only capable of moving a car
eighteen miles instead of diesel’s twenty.
Back when all telephones had dials, Brits were paying four dollars a gallon. $5,000 a year good pay in America. $4,000 a living wage in GB.
In Venezuela today gasoline is .10 cents a gallon and there’s serious inflation.
So, perhaps prices do not, as Shortonoil says, have that much impact.
Can it be that BTUs alone are that earth moving?
When we added ethanol the economy didn’t
collapse… or, maybe it did? (ethanol decreased
milage 2%)
Oh educated, articulate Kanon, tell us where Shortonoil or everyone else, are going astray…
Davy on Mon, 25th May 2015 11:04 am
Cannon, fair enough, normally I get complaints about Davy doom rants being too word salad and too long. I will give you a few examples when I get a chance later.
I am on the tractor now mowing pasture.
It is a glorious day and part of a glorious spring. It is a good day to be alive.
BobInget on Mon, 25th May 2015 11:08 am
Northwest resident,
If and when 15 or 20 percent ethanol is added to gasoline instead of the current 10% we will simply need to buy one or two percent more gasoline to reach our intended destination. That’s an easy one.
The hard part, I believe, comes up around the quantity of oil, diesel, needed to plow and plant, water,weed, harvest, transport corn, distill, transport, mix, transport to a ‘gas’ retailer.
(contrast that with natural gas that in some cases
go directly from well-head to retailer)
Or, perhaps shortonoil is referring to the inordinate
amount of condensates in shale derived oil? In which case, why doesn’t he say so.
Pose your next crisis simply so old people get it.
kanon on Mon, 25th May 2015 11:59 am
BobIngent — “Oh educated, articulate Kanon, tell us where Shortonoil or everyone else, are going astray…”
I’m not sure how to take that, but I don’t think Shortonoil is really going astray. I think we have a very difficult time understanding what is happening. Another poster has described us a status seeking apes, basically lacking the ability to conceptualize these circumstances. We may be clever, but we are not smart, and altruism or enlightened long-term thinking are often self defeating modes. I tend to agree partly, but there is the fact that we simply do not have good information and we will never have it because information is over simplified, stereotyped, and provided only to advance someone’s status seeking agenda. I like the “entropic decay” label because it may be a reliable and useful simplification. If we are going to be able to actually do anything constructive, the status seeking aspect of our nature has to be satisfied as well as a viable resource use pattern. Good ideas are hard to come by, so I am happy to listen.
BobInget on Mon, 25th May 2015 12:04 pm
Now,I AM confused. Oil prices are still going higher
despite powerhouseing USD’s.
(IMO USD’s are currently world’s strongest because others are ugly weak, also there is a perception, true or false, the US could be energy
independent if she wished)
Crude oil futures edged up on Monday. RUTERS
Front-month Brent crude gained 6 cents to $65.43 a barrel by 1400 GMT, after touching an intraday low of $64.72. U.S. crude was down 30 cents at $59.42 a barrel, after reaching $59.10 earlier in the session.
The market drew support from figures showing strong demand across Asia and the United States.
“Global oil demand continues to surprise to the upside, with April data showing no signs of slowdown despite a pick-up in prices,” Energy Aspects said in a note.
Japan’s customs-cleared crude oil imports rose 9.1 percent year-on-year to 3.62 million barrels per day (bpd) in April, the Finance Ministry said.
In China, crude imports hit a RECORD 7.4 million bpd last month, with healthy car sales countering a slowing economy.
In the United States, the peak summer driving season started with Memorial Day on Monday, and the American Automobile Association said road travel was expected to reach a 10-year high over the Memorial Day weekend.
The dollar pared early gains but remained near two-month highs against the euro and yen as well as a one-month peak against a basket of currencies.
Posters note:
Please explain, once again, how fewer BTU’s per barrel lead to lower prices in spite of resulting greater demand.
shortonoil on Mon, 25th May 2015 12:23 pm
“I think the realization that FF energy is lower quality now is important, since people really only see a count of alleged barrels of reserves.”
Here is a couple of examples of how quality is changing:
In 1929 Ford Motor Company began production of the Model A Ford. It got 23 miles per gallon on the highway. A barrel of oil (API 37.5°) extracted in 1930 would have powered the Model A for 789 miles. The same barrel extracted today, and used in an identical Model A would power it for 186 miles. The energy required to production petroleum, and its products has increased 424 % since 1930.
In 1975 a barrel of oil (API 37.5°) delivered 3.65 million BTU of useable energy to the economy, In 2015 that same barrel is delivering 1.90 million BTU of useable energy. The amount of energy a barrel of oil can deliver to the economy has declined by 48% in the last 40 years.
http://www.thehillsgroup.org/
kanon on Mon, 25th May 2015 12:31 pm
shortonoil — “In 1975 a barrel of oil (API 37.5°) delivered 3.65 million BTU of useable energy to the economy, In 2015 that same barrel is delivering 1.90 million BTU of useable energy. The amount of energy a barrel of oil can deliver to the economy has declined by 48% in the last 40 years.”
Is this because exploration, production, and refining, plus transport, are using a much higher share of the gross production volume? Or is there some system decay (whatever that is) accumulation?
rockman on Mon, 25th May 2015 12:52 pm
kanon – Perhaps shorty meant NET bbls of oil. Btu varies a little by API gravity but not nearly that much. There are oils today that deliver more Btu’s then SOME oils produced decades ago.
Apneaman on Mon, 25th May 2015 1:01 pm
kanon says “the status seeking aspect of our nature has to be satisfied”
That’s right buddy. All aspects of our nature must and will be satisfied. Therein lies the problem. Our mismatch between our lightening speed technological evolution and our slow crawling physiological /emotional evolution is resulting in the destruction of the systems that provide our most basic needs. We is out of control, but our nature says to pretend otherwise. Except for us doomy few, us doomy band of brothers.
Northwest Resident on Mon, 25th May 2015 1:20 pm
BobInget — “If and when 15 or 20 percent ethanol is added to gasoline instead of the current 10% we will simply need to buy one or two percent more gasoline to reach our intended destination. That’s an easy one.”
Bob, you may be forgetting that to get that 15 or 20 percent ethanol a substantial amount of oil must be used in its production.
It gets back to the same problem. To produce anything on a large enough scale to make a difference we need massive quantities of high energy oil — exactly what we’re running out of.
Davy on Mon, 25th May 2015 1:31 pm
Cannon, I talk about entropic decay it is in a dynamic systems sense. In the physical sense infrastructure of BAU degrading faster than we can repair, replace, and develop new infrastructure. That is a no brainer. We know from multiple sources that our global infrastructure is dated. We have spent much more time building new than repairing and replacing consequently we have brand new infrastructure depending on antiquated infrastructure in many cases. How many cities have failing water, gas, and electric utilities under their pavement? There are huge cost involved that we no longer have the resources or energy to repair and replace. In regards to PO we have the whole oil complex with its refineries, pipelines, and drilling equipment aging as one important example.
When I talk about entropic decay though I think about those abstract areas of our modern world. Our financial system is degrading because of debt, wealth transfer, and limits. We see very pronounced examples of diminishing returns occurring lately with QE and rate repression. Our social fabric is decaying with wealth transfer, poor lifestyles, overpopulation poverty, and war. The education system is in decline. Our basics of good governance is in decline. The ecosystem is in decline of failing globally.
I realize the use of entropic decay to the abstract aspects of our human ecosystem is pushing the envelope. I am many times using word salad with my doom rants. I get complaints about this but the reason I use word salad and goofy terms is we are in a paradigm shift or a pole shift. We are in a new order that requires a new and adapted language. In order to see the reality of this new world we have to try to describe it differently. We can no longer use all the same definitions and terms we do with BAU growth. We are now facing descent and this will be a different process than growth. We need a new language and cultural speak to understand this new world order.
Anyway Cannon. Thanks for the interest in my word salad. Stick around you have a good head on your shoulder and we can use some new blood.
Here are some entropic related terms for reference:
Schrödinger’s paradox, the paradox that living systems increase their organization despite the Second Law of Thermodynamics.
Evolution-related concepts:
Negentropy – a shorthand colloquial phrase for negative entropy.[18]
Ectropy – a measure of the tendency of a dynamical system to do useful work and grow more organized.[19]
Extropy – a metaphorical term defining the extent of a living or organizational system’s intelligence, functional order, vitality, energy, life, experience, and capacity and drive for improvement and growth.
Ecological entropy – a measure of biodiversity in the study of biological ecology.
In thermodynamics, entropy (usual symbol S) is a measure of the number of specific ways in which a thermodynamic system may be arranged, commonly understood as a measure of disorder. According to the second law of thermodynamics the entropy of an isolated system never decreases; such a system will spontaneously proceed towards thermodynamic equilibrium, the configuration with maximum entropy. Systems that are not isolated may decrease in entropy, provided they increase the entropy of their environment by at least that same amount. Since entropy is a state function, the change in the entropy of a system is the same for any process that goes from a given initial state to a given final state, whether the process is reversible or irreversible. However, irreversible processes increase the combined entropy of the system and its environment.
Davy on Mon, 25th May 2015 1:37 pm
Bob, your ethanol is only useful as a niche in the corn producing areas. Ethanol quickly becomes an energy negative if it must be moved either with the product to be used or the finished product. I have often said ethanol is a good idea for the Corn Belt and the ethanol made there integrated into the production agriculture process locally. As liquid fuels go into shortage at least our vital production Ag sector can keep its lights on and keep some food production going. Keep ethanol local and it will be an important mitigation fuel.
Outcast_Searcher on Mon, 25th May 2015 1:52 pm
Well whatever we do, let’s take the most disappointing statistic we can find, focus on THAT, and remind ourselves that we’re all doomed.
Over the past year (crude oil prices have fallen significantly within the past year):
US personal savings rates are up significantly. That’s good news. (We usually see all kinds of complaints about how debt will crush the economy. So more savings by the consumer should be (and is) a good thing.
Unemployment continues to trend down.
Inflation remains benign.
Overall average hourly earnings remain fairly stable.
Now, assuming oil prices remain relatively stable for awhile: as the impacts of the drop in oil prices trickle through the system into the fall, the ongoing benefit to consumers by much lower gasoline prices should be a larger net benefit to the economy going forward. More savings, spending, or both.
So just because economists didn’t predict the exact timing and nature of the effects, they were generally correct. The net overall benefit, over time, to the consumer looks solidly positive.
But I know — we’re not supposed to talk about that on a peak oil site.
Apneaman on Mon, 25th May 2015 2:18 pm
Outcast, where do you get the personal savings stat? Where do you get all these happy numbers? How many econo-preists predicted the housing bubble? Dot.com? Savings and loan? 1929? Like today, those people have always talked to the media and if you go through the papers of the day it becomes crystal clear everyone of them denied or down played any problems. I can provide you with their quotes if you like – I have collected a bunch of them. There we a few who tried to warn in each one of those instances but they were shouted down, mocked, characters attacked and ignored by the gatekeepers and faithful alike.
FIRST PRINCIPLE: “Economics” is an intellectual Trojan Horse with political agendas hidden within known-false assumptions.
The political conclusions follow logically from the assumptions, so if you accept those known-false assumptions,
then you also accept those hidden political agendas.
http://jayhanson.us/e.htm
Davy on Mon, 25th May 2015 2:27 pm
Outcast, your fluffy hopium would probably have been correct back in the 70’s. Today with BAU it is different. If BAU is not growing at 3% or better especially in Chindia we are in serious trouble. The entropic decay threshold level is much higher today because of the overpopulation and overconsumption. We are in an overshoot situation that requires more than just modest growth to avoid collapse. This is getting worse not better.