Wow - Donald Trump

So, I have not posted in months, but I saw  George Stephanopoulos's  interview this morning.  Apparently Mr. Trump thinks that we can threaten the worlds suppliers of oil to lower their price and/or increase their production ( to lower the price) by withdrawing US military protection.   I think that whether or not we can afford to provide a military presence around the world, let alone in the Persian Gulf, is a good thing to discuss.  But the consequences for world oil supply are not going to be that simple. 

Sure, I  think that if the US chooses to act as a financial trader and ruthlessly manipulate the oil markets even to the extent of invoking our military, prices could go down, but only for a while......they could also go up, way up!  But just a spike way up.  That's because I think there is some evidence that the world economy and oil prices are in a balancing act.  We have reached the point where serious price escalation reduces demand,  high prices create a recession and that keeps demand tamped down which  creates oil surplus which lowers the price and given other macro economic conditions we can start pulling out of the recession, increase demand and start the whole thing over again....

You can read about this at Robert Rapier's consumer energy blog and also find pointers to other economic analysis.  Robert call's this phenomena the "long recession'.

And yet another problem we face is that any surplus that is created by OECD  demand destruction is consumed by the rest of world, leaving little surplus for us to  build future growth on.  Here is a sobering analysis by Jeffrey J. Brown over at the The  Oil Drum (handle:  westexas):  In 2005, the top 33 oil exporting countries in the world produced 62.2 mbpd (million barrels per day) and  exported 46 mbpd, that means they consumed, internally in their country about 26% of production.  China and India imported 11% of what was exported.  In 2009, those same countries produced 60.3 mbpd, consumed 17.5 mppd (about 27.5%), exported 42.8 mbpd and China and India imported 17% of that!

Note two things there, the producing countries are slowly consuming more of their production and the great growth rates in China and India are consuming a ever higher fraction of world oil exports. 

So how can this be?  How can 2 countries which are considerably poorer per capita than the US be able to afford the oil that we can't afford!


First, is it really true that we in the US are consuming less  crude oil?   In 2009, US oil consumption was lower than it was in 1998.  The downtown in growth started in 2005 for the US and really picked up steam in 2008.  From the dot.gov site we can look at monthly and annual miles driven in the US (a proxy for overall oil consumption):

The peak was actually in February of 2008 and we have not recovered back to that level yet.  Probably won't this year either.  The point is that American's responded to higher oil prices by driving less thus consuming less.

Second, if oil and oil products like gasoline are so much more expensive for us that we change our consumption how can the Chinese and Indians consume more.  I think the answer lies in how far one's energy goes.  Another post on The OilDrum by Gail Tverberg suspect's that because the American infrastructure requires a  higher  EROEI (Energy Returned on Energy Invested) than Chinese or Indian infrastructure, the impact of higher prices of energy is much greater in America than in Chindia...or maybe it's just because the Chinese have our money in trade surplus that allows them to subsidize oil consumption? 

So, I hope you can see that any change in gasoline prices due to military action by the US is not going to address the root causes of high prices.  I think Donald Trump has lived too long in the world of high finance, where lot's of capital resources and shrewd bargaining can solve any monetary problem.  If only oil were like money and we could print more of it!