April 08, 2005
A Permanent Oil Shock?
The IMF is predicting that the current oil prices are going to be here to stay. I am usually suspicious of these kinds of doom and gloom forecasts as they tend to make an implicit assumption that there is no response these high prices. The basis for this forecast is that the IMF is predicting a sharp rise in demand and a plateau in production from non-OPEC countries.
The problem I have with these types of forecasts is that they seem to imply no demand side response. Granted, there aren't many subsitutes for gasoline, but there are ways to reduce consumption and still travel approximately the same distances. Further, as prices increase people are more interested in purchasing fuel efficient cars and other items that rely on oil. Hence research into subsitutes and more efficient means of using oil also become more attrative.
Update: Here is an informative post on why hybrids aren't getting the milage that the ads claim.
Update II: Lynne Kiesling points to this article at Macroblog (which I need to add to my blog roll...speaking of which I need to clean up some links there as well). There is also this post at Calculated Risk.
Posted by Steve at April 8, 2005 10:07 AM | TrackBackShould the US return to the 55 mph speed limit?
Posted by: yportne on April 8, 2005 10:49 AM55 kph speed limit. We should really slow down and learn to appreciate life.
Of course, I drive pretty slow anyway. I was once passed by a little old lady in Dodge City, and she flipped me off. (And this is the straight up truth, too. With God as my witness.)
Posted by: Ron on April 8, 2005 11:26 AMI will personally track down and kill anyone proposing a 55mph speed limit.
Dude, I can't drive 65, much less 55! I'm pretty comfortable at 85. Well, at least when I'm in a rental car on work. I generally do a little over the speed limit when I'm paying for the gas!
For what it is worth, out on the interstates between the big cities, I find that my fellow drivers are doing about 70 mph. The big rigs are doing a little less than that. There isn't a huge increase in mileage from 70 mph to 60 (everyone drives a little bit over the limit, so a decrease to 55 means that people will drive 60, if not faster).
Around the cities, I find that my fellow drivers are driving like bats out of hell! Here in Chicago, if there isn't traffic, people do upwards of 90 mph! But the speed limit is 55 already.
Also, if gas prices go high enough, people probably WILL slow down in order to get better mileage.
Posted by: Buzzcut on April 8, 2005 12:38 PMWith Goldman's $105 forcast yesterday and today the IMF, I think this might make a good contrarian signal. Because when has the IMF ever been right?
Posted by: jjayson on April 8, 2005 01:21 PMSure, jj, and you can cash in on this contrarian signal by shorting oil futures. How much of your own money have you bet that way?
Steve, even if market forces may slightly ameliorate the full downside through substitution and demand side changes, this is more like the situation in the Kyoto Treaty. By that I mean that some decreases in the patterns of energy usage by the advanced world's perhaps billion, billion and a half population will not likely fully offset the rapacious increases attendant the rapid expansions of use in the vast majority of the world's population, and specifically, India and China.
sofla has it right, this is a demand problem, our supply isnt keeping up with demand, and it wont come close for a long time, china and india are only going to exacerbate the problem. anwr will solve piss all, it will only gaurantee that usa will have oil, it will still be expensive
Posted by: jimmy on April 8, 2005 10:15 PMThe IMF is predicting high oil prices!
Sell my oil stocks and short the futures.
Posted by: Robert Schwartz on April 10, 2005 09:59 PMJimmy,
I'd be very careful taking economic points from Sofla. Granted the recent run up in prices is due to demand, but there is a limit as to how high that demand increase will push up prices. There were similar predictions back in the 70's and those predictions failed miserably. Will the same thing happen here? I don't know for sure, but at the very least we should keep this possibility in mind when looking at these doom-n-gloom predictions.
Posted by: Steve on April 11, 2005 09:23 AM