Dwight Watt - Watt Thoughts #220 10/1/2010

#220 - Oil (Watt Thoughts)

For the past 2 weeks the price of oil has risen significantly. No reasons have been given. It is not the beginning of driving season (reason given every spring/early summer, although gas usage is just a part of oil usage), no hurricanes threatening gulf, no war in mid-east (peace talks occurring although dispute on building freeze end in certain territories), reports are inventories have been at highest levels fro several months compared over many years and other usual stuff.

The only reason I have best figured is the US government has been claiming the economy is improving and the group that decides recessions has declared we are out of recession (a year ago). Oil over $80 a barrel by my my watching and analysis just knocks the economy back down and today we have passed that number again. Less money for people to spend on other stuff than gas, less money for businesses to build and expand as the money is going to oil products.

Although we had the BP disaster in the gulf this summer, expectations are currently at many places that we are no where near peak oil (meaning that the amount we will find and drill is in decline). Since the 1973 in the first oil crisis we have heard continuously that we have reached peak oil and will be out of oil in 30 or less years. We have discovered massive amounts of oil in last few years and although it is not all easily accessible I believe we are probably years from peak spot. Since the 70s we have also become much more energy efficient in the US and the world. Our cars today get much higher MPG than back then. WE have developed and are developing a number of alternatives including recycling and using green sources. Electric cars are not necessarily a way to reduce oil usage and carbon footprint depending on how that electricity is produced.

The rising of oil prices leads me to think that the economy will continue in its doldrums for a long time. People controlling the oil market can cause the economy to rise or fall. Either that or we have another balloon and it is oil and by November/December we will see the effect of oil prices too high and them fall in the $40-50 range which is probably unrealistically low. $60-70 strikes me as a realistic range that both is low enough for good economy and high enough to encourage being more efficient.

Definition of recession by the authorities is not when economy is still bad but whether it is getting worse. Basically if you fall out a 3 story window the time while you are falling to ground is a recession after you hit and people come over to help you are no longer in recession as you are no longer falling but you are major hurting now with broken bones and body but you are recovering and not in recession. For the general public we would define recession when things are not as good as they should be (unemployment above 5-6%, growth of economy less than 2% and most of the decision based on employment).

Remember when they tell you we can cut oil dependency by just raising the price of gas $1 a gallon we did that in 2005 and have stayed pretty consistent with it and they are still claiming that is what we need to do.



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