[Graeme]

Oil Is Fading Into History

$this->bbcode_second_pass_quote('', 'O')il Matters Less than Wall Street Thinks

$50 oil is certainly bad for producers and their supply base. It is at the same time good for transportation businesses and energy intensive manufacturers. Consumers will probably spend a bit more too. The net effect on our economy in the short term is basically a wash, but in the long term oil can go a lot lower. Forbes’ Christopher Helman is right, and the demand side trends all point lower.

Oil is Fading into History

Listening to the talking heads on TV can be confusing with so many pundits offering contradictory arguments about where oil will go next: back over $100/bbl or down further to $20/bbl. Speculators will no doubt pocket some big bucks guessing right on the frothy sentiments driving this market, but business planning for everyone else should stay the course.

The LA Times reported an interesting factoid attributed to Howard Silverblatt of S&P Dow Jones Indices. It seems energy stocks currently make up 8.9% of the total market value of the S&P 500. Back in 1980 the corresponding figure 28.8%. Oil was pretty much king in the 20th century, but today not so much.

Relax and Dematerialize

Using 1980 as a reference point we collected data from the World Bank and the US Energy Information Administration to see how much things have changed in the past 35 years. Using constant dollars the data shows a nearly five-fold increase in output per barrel of oil consumed worldwide.

This dematerialization of the global supply chain is decoupling economic growth from energy consumption. For supply chains able to deliver information value, rather than just material value, oil is irrelevant. Apple AAPL +3.82%, for instance books $2200 in revenue per kilo of product it delivers. Compare this to about eight cents per kilo for iron ore and the long run direction is clear.

We also took a look at population trends against oil consumption and found another reason to relax. Starting in 1980 with consumption of 5.2 barrels of oil per person per year we see a dramatic drop of nearly 13% by 1985 followed by a fairly steady run of around 4.6 barrels per person per year continuing to the present day. The jump in world population during this time took us from 4.4 billion to 7.2 billion people with nearly all this growth coming in developing markets.

Worries that bringing China, India and the rest up to western living standards will destroy the planet may be overstating the case since it seems emerging markets growth is not necessarily dirtier than growth in Europe or North America.

These two megatrends point happily to a future that is cleaner, more inclusive, and more sustainable than many had feared. For supply chain leaders the takeaway is simply that oil matters less today than yesterday and will matter even less in years to come.

[GHung]

"Worries that bringing China, India and the rest up to western living standards will destroy the planet may be overstating the case since it seems emerging markets growth is not necessarily dirtier than growth in Europe or North America."

Jeez... Anyone else having a problem with this logic? And the rest of the article? I'll bet the writer and his buddies are sitting at the bar laughing their asses off; probably wrote it at the bar as a joke. Cheers!

[Newfie]

Yup gung, more disturbing is that some will believe it.

Another fantasy.

[Lore]

How does every Chinaman, that use to ride a bicycle, and now owns a Buick not add to the crisis in a world already in population overshoot?

[Pops]

$this->bbcode_second_pass_quote('Graeme', 'T')his dematerialization of the global supply chain is decoupling economic growth from energy consumption. For supply chains able to deliver information value, rather than just material value, oil is irrelevant. Apple AAPL +3.82%, for instance books $2200 in revenue per kilo of product it delivers. Compare this to about eight cents per kilo for iron ore and the long run direction is clear.

[Subjectivist]

$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('Graeme', 'T')his dematerialization of the global supply chain is decoupling economic growth from energy consumption. For supply chains able to deliver information value, rather than just material value, oil is irrelevant. Apple AAPL +3.82%, for instance books $2200 in revenue per kilo of product it delivers. Compare this to about eight cents per kilo for iron ore and the long run direction is clear.

[GHung]

Subjectivist: "These new economy theorists all seem to forget, food, medicine, clothing all travle via very real truck/train/ship and require fuel to do so."..

...and ignore that petroleum is embedded in every aspect of their production, distribution, marketing, purchasing, consumption and disposal. Somehow the links in that chain aren't important, or are expected to take care of themselves with some other process that doesn't include oil. Maybe we'll have virtual food, clothing, medicine, and everything else, distributed on virtual networks. Virtual currency was just the beginning of our virtual future.

[Ibon]

Their virtually out of their minds

[GregT]

Wonderful picture. We should all be inspired by human technological advancement. Too bad that all of those remaining trees spoiled the view.

[Ibon]

Oil is actually fading into history, along with the overshot population that it created.

[Ibon]

$this->bbcode_second_pass_quote('pstarr', 'N')ot only medicine and toys.


This is my neighborhood. When I read that crap I get mad. At least the American consumer would make a tiny, minimal effort to appreciate the destruction accomplished for their toys. No Graeme, the supply chain has not been dematerialized

[ROCKMAN]

“It seems energy stocks currently make up 8.9% of the total market value of the S&P 500. Back in 1980 the corresponding figure 28.8%. Oil was pretty much king in the 20th century, but today not so much."

Childish cherry picking and very transparent IMHO. Yep: big chunk of the market value after oil increase to about the same inflation adjusted price as we saw a year ago. Notice that they don't bother to mention how much the energy sector declined when oil prices fell 85% by 1986. Anyone think the sector still amounted to 28.8%? That looks like a rather tarnished crown despite oil being “king of the 20th century”. LOL.

I don’t think trying to using a 30 year old trend is a very valid approach to describe the future from today. But that’s what the author is trying to do. So following that logic after oil prices crashed to $17/bbl in 1998 we saw prices begin their boom just 10 years later. So if that questionable logic holds we’ll be seeing $100/bbl oil sometime in the 2020’s. That is if one follows his logic. He may point out how big the energy sector was in 1980 but then he ignores the depths it sunk to by 1986. Depths that were again repeated in 1998 after a recovery. Depths in 1998 they were followed by peaks starting just 10 years later. And now back to depths which he implies the energy sector will probably never escape from…just as he would have incorrectly predicted in 1986 and 1998. He might be right this time. Or he’ll be 0 for 3 this time around.

[dolanbaker]

Rather a silly story tbh, after all King Coal ruled the roost in the 19th and the first half of the 20th century, but we're probably using more than ever before now.
It's only in the eyes of investors looking to easy gains that oil has faded from!

[Byron Walter]

Yeah, I'm phasing out personal oil use and going with dylithium crystals. Unfortunately the rest of the world may not join me. Global oil consumption is projected to grow from 91.4 MMbpd in 2014 to 92.3 MMbpd in 2015.

http://www.eia.gov/forecasts/steo/report/global_oil.cfm

As for price fluctuations, anyone that's spent time in the business knows that boom bust cycles are par for the course... about ten bucks a barrel back in the late 90s to nearly $150 a few years ago. At least for now, it wouldn't be much fun being in ND and having to put up with the dismal weather and crummy price.

[Subjectivist]

What do you all think would happen if someone did serious damage to the main Saudi Arabian oil export terminal?

[dolanbaker]

$this->bbcode_second_pass_quote('Subjectivist', 'W')hat do you all think would happen if someone did serious damage to the main Saudi Arabian oil export terminal?