Nouriel Roubini’s Global EconoMonitor » Scary Oil

Nouriel Roubini: The last three global recessions (prior to 2008) were each caused by a geopolitical shock in the Middle East that led to a sharp spike in oil prices. The 1973 Yom Kippur War between Israel and the Arab states led to global stagflation (recession and inflation) in 1974-1975. The Iranian revolution in 1979 led to global stagflation in 1980-1982. And Iraq’s invasion of Kuwait in the summer of 1990 led to the global recession of 1990-1991.

Even the recent global recession, though triggered by a financial crisis, was exacerbated by spiking oil prices in 2008. With the barrel price reaching $145 in July of that year, oil-importing advanced economies and emerging markets alike faced a recessionary tipping point.

……..Oil is already well above $100/barrel, despite weak economic growth in advanced countries and many emerging markets. The fear premium might push prices significantly higher, even if no military conflict ultimately takes place, and could trigger a global recession if one does.

via EconoMonitor : Nouriel Roubini’s Global EconoMonitor » Scary Oil.

2 thoughts on “Nouriel Roubini’s Global EconoMonitor » Scary Oil

  1. Ray says:

    My BS meter is twitching…. it is not the price of crude oil (especially WTI) that has economic consequences. It is “transportation cost” in the form of fuel costs.

    “This is obvious!” ….is it really? Gasoline & diesel prices used to track the cost of WTI. Not any more & hasn’t since late-2010. Brent is much better correlated to gasoline than WTI. WTI is no longer a honest benchmark.

    Right now, over a million barrels per day are sold in the US mid-west at ~$75/bbl yet gasoline is what price??? Mid-Con crack spreads are massive. Gulf Coast heavy crack spreads are high. East Coast refiners are shutting down because thay can’t compete with US refiners with cheap feedstock or more efficient offshore refiners. Ethanol is expensive on a gallon of gasoline equivalent (gge) when subsidies are taken into account.

    Agreed that N. Roubini has a point. But his point should be transportation cost, not the cost of crude oil.

    The second & third parts of “transportation costs” are: usage and efficiency of use. These are mostly based on the choices we have made in the past. Europe did fine for many, many years at $8/gal retail. Yet everyone believes that $8/gal gasoline would put the USA into a flat spin.

    EU vehicles consume 25% less fuel than USA vehicles. That would bring $8 gasoline to a $6 “USA equivalent”. Then add in fewer miles driven, extensive use of rail, a goal for a major chunk of vehicles on CNG (at half the gge cost in dual fuel and dedicated vehicles). What you get is ‘getting the job done’ for less gasoline & diesel at a much more competitive total “transportation cost”.

    Time for better choices to be made in the USA. The EU is much better positioned to weather a “crude oil” price shock than the USA right now. It doesn’t have to be this way going forward.
    Ray

  2. Bill says:

    ‘Scary oil’ but let us not ever dare say that it might be ‘scarce oil’ or take one step to admiting that it is not an infinte resource. Sadly, although finally giving some recognition to the role of oil in the current world order, the author still looks around for a rationalisation that will make him and his readers feel better – to quote the article: “The reason is fear. Not only are oil supplies plentiful…”
    If it is so plentiful why not increase supply and pull the carpet out from under the speculators? The reason this does not happen is not ‘fear’ from the oil producers. It might be greed. It might be that they can’t…

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