bertilak wrote: ↑
Sun May 10, 2020 9:22 am
btenny wrote: ↑
Sun Mar 15, 2020 8:41 pm
I think we are suffering from all three types at once. This COVID19 thing is causing a event driven economic and medical panic that is bad but likely to blow over in 1-2 years. But the OIL price war that was started last week is most certainly the beginnings of a big structural change in the world energy plan. We are awash in oil from fracking especially in the USA. We are starting to use electric cars and trucks. We are starting to use lots of renewable energy. All these things are reducing our need for oil. The last oil price war in the 1970s took decades to restructure. I thing this time will be similar.
And lastly this bear market is the natural ending to the long bull market. It was signaled by the inverted yield curve and interest rate raises that happened last year. This bull started in 2008 and is over due for a draw down after a 12 year run up.
So I see this Bear as really tough and deep and maybe very long.
But how can cheap energy be bad for the economy and ultimately for the market? Specific industries (those supplying energy) may be hard hit but ultimately cheap energy has got to be a good thing. Heck, ever-cheaper energy (and more efficient use of it) has contributed to a century-long (or longer) economic boom which we are still experiencing.
Cheap oil is bad for Alberta, and for Saudi Arabia, and for Venezuela and for Russia.
In other words, if you have a larger than average energy industry (oil & gas, chiefly) if the price for these commodities plummets, you lose. Even if say, Japan, which has no domestic oil & gas industry to speak of, benefits. Or a major oil importer like China or India.
So which is the US? Well in the last 10 years or so, due to fracking, it has moved from being net beneficiary to (probably) net loser from a falling oil price. It's a tough call, because the US consumer is still the biggest single user of petroleum products on the planet. Americans drive a lot, and they fly a lot. If you are Union Carbide or another base petrochemicals producer, you are probably a winner. That's a complicated calculation because given that prices of feedstock were/ are higher in other developed countries, the fall might benefit a European or Japanese producer more than it benefits a US producer (that already has relatively cheap feedstock, especially natural gas).
Natural gas prices are not really global. The LNG (tanker born) price has already fallen a lot due to demand destruction (warm winters and now CV-19), completion of major new fields in Australia, Africa and elsewhere, and US becoming an LNG exporter (a side effect of bountiful gas, a side product of oil fracking). US natural gas prices were already among the lowest in the world.
Oil? The US oil sector is taking it on the chin, and it's a big sector now - the US is almost a net exporter of oil.
There's another factor, which is "stickiness" or lag - which macroeconomics struggles to put into nice equations (or rather to recognise that it should), but is there. A downtrend in the oil price is reflected *immediately* in the budgets of oil companies - layoffs, subcontractors idled, capital spending falls, dividend cuts etc.
Conversely the benefits of lower gas (petrol) prices take a lot longer to be felt. For one, Americans are not driving or flying much at the moment. For 2, in a recession they cut back anyways (no work to drive to, no money to go shopping etc). So it takes longer for the improvement in consumer purchasing power to feed through.
Thus on balance the low oil price is probably bad for the US economy, rather than good. A big sector in crisis, and the benefits take a long time to flow thru.
Efficiency? Yes the US economy is a much more efficient user of oil than it was in 1973, say, due to 1). deindustrialisation (the manufacture has moved somewhere else) 2). stopping using oil for power generation (it's 2% or less of all electricity generation, now, vs something like 25% then) 3). less oil for home & commercial heating (mostly now in the Northeast) 4). more efficient vehicles and planes etc.
On greater efficiency of vehicles a lot of that has been eaten up by the shift to heavier SUV-type vehicles and pickups, which now well outsell conventional cars. Worldwide, the gains in fuel economy have been eaten up by the shift to SUVs. Also Vehicle Miles Travelled has risen steadily, with brief dips during recessions. Exception: the post 2008 VMT fall was so protracted that some called it a structural break aka a new era. But, lo and behold, around 2016 it started rising again - just another sign of a very late, long and slow recovery from 2008-09 crisis.
Planes are definitely more efficient (if 1973 a jet plane was say 100 in fuel consumption, I think the number now would be close to 50). However we fly a lot more miles, so our total oil consumption is not lower, but higher.
I think EVs are a thing. And going to be a huge thing. But on a global picture, I don't expect them to have moved the needle much in 10 years-- there are already 1 billion+ gasoline (or diesel) powered passenger vehicles out there, and demand in emerging markets keeps growing.
20 years? That's another matter. A number of European countries (Ntherlands, UK) have stated that they will make sales of (new) Internal Combustion Engine cars illegal from 2035 ish.
I think it's a big like digital photography. The new technology floated around for about 35 years without doing much visible harm to conventional film demand. And then, all of a sudden, a tipping point was hit. Polaroid and Kodak would eventually go broke. We are not there yet, but we can see that in 10-20 years the picture might be very different.