Article

2005-01-27 International-UN-NGOs

OPEC May Postpone Production Cuts as Oil Nears $50 a Barrel

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Posted by Steve White 2005-01-27 12:21:11 AM|| || Front Page|| [11131 views since 2007-05-07] Top

#1 Good ole' OPEC; can always count on them to stick the knife in and slowly turn it!

Posted by smn 2005-01-27 12:35:31 AM|| 2005-01-27 12:35:31 AM|| Front Page Top

#2 High oil prices don't seem to be doing serious harm to the American economy, although it is one more factor weighing down the European economies, especially Germany and France. I wouldn't mind oil prices staying on the high side long enough for us as a people to shift toward higher fuel efficiency -- cars, Energy Star household equipment, the cute little light diodes that are supposed to replace regular lightbulbs in the next few years. With the U.S. as a market for these kinds of goods, manufacturers will have the economy of scale to enable such goods to be priced within reach of the rest of the world.

Posted by trailing wife 2005-01-27 12:50:47 AM|| 2005-01-27 12:50:47 AM|| Front Page Top

#3 Well said Trailing Wife, but I pray to God that those cute little light diodes won't be coming only and straight from China. My conscience is already bothering me over the greater weight of Saudi oil versus Chinese goods! Which presents the greater strategic threat?

Posted by smn 2005-01-27 1:07:53 AM|| 2005-01-27 1:07:53 AM|| Front Page Top

#4 smn, I am seriously the wrong person to ask that question of. Give me a couple more years here at Rantburg, and then perhaps I'll be ready to give it a try. But I do hear that the diodes have something like a 10-year lifespan, which if true makes them pretty much a buy-once item -- should be easier on your conscience then.

Posted by trailing wife 2005-01-27 1:38:48 AM|| 2005-01-27 1:38:48 AM|| Front Page Top

#5 Time for my cold fusion plug. Not withstanding what you may have heard/read, cold fusion is real and offers the potential of almost unlimited almost free energy. Why the possibility it could exist should be rejected by the scientific powers-that-be is an interesting question, but no more intersting than the completely fictitious global warming nonsense. I assure you cold fusion is a real phenomena and in the next few years you will see a car battery size device that will produce kilowatts of power for months. EBook for those who are interested. And it may well come out of China.

Posted by phil_b 2005-01-27 1:42:08 AM|| 2005-01-27 1:42:08 AM|| Front Page Top

#6 My conscience is already bothering me over the greater weight of Saudi oil versus Chinese goods
Both are bad for our economy. We are importing way more than we sell abroad. We are suffering from twin deficits - gov't over spending and foreign goods importation out weighing our goods being exported.

I read the article that was posted earlier about the federal gov't debt as a modest percentage percentage of our GDP and the article suggesting that running huge deficits wasn't bad for our economy.

But such interpretation is misleading because the GDP reflects our entire economic base, whereas our debt can only be paid down by gov't revenues. Our debt is financed upwards of 40% by foreign investors. Our dollar's devaluation reflects foreign investors thinking it's unlikely we will pay back the debt. So I don't agree that our economy is in good shape.

Higher oil prices is definitely not helpful.

Posted by 2xstandard 2005-01-27 2:06:00 AM|| 2005-01-27 2:06:00 AM|| Front Page Top

#7 Our dollar's devaluation reflects foreign investors thinking it's unlikely we will pay back the debt. Cause and effect are by no means so clear cut. Arguably the main reason for the US trade deficit is people hold USD because they trust the US gov most of all to protect its value. A similar argument holds for US Gov debt, although gov debt is primarily a domestic problem.

Posted by phil_b 2005-01-27 2:50:15 AM|| 2005-01-27 2:50:15 AM|| Front Page Top

#8 I am running a massive current accounts deficit with Publix, I worry they will soon stop accepting my dollars.

Posted by Shipman 2005-01-27 7:32:54 AM|| 2005-01-27 7:32:54 AM|| Front Page Top

#9 Interesting article in the WSJ today regarding cost of oil. Cost to discover is $2-3 per barrel. Cost to lift is $.5-1 in the ME. Author argues that the abundance of supply is what allows the price to fluctuate so violently. Cost to lift Alberta tar sands is $15 per barrel but it requires substantial capital investment that will be at risk if the ME lowers the price. We should be taking some of their profit by way of an oil import excise and providing incentives to develop Alberta sands.

Posted by Mrs. Davis 2005-01-27 8:28:59 AM|| 2005-01-27 8:28:59 AM|| Front Page Top

#10 Mrs Davis: That's an interesting counterpoint to the "peak oil" conspiracy theorists, don't you think?

Posted by Phil Fraering 2005-01-27 8:55:09 AM|| [http://newsfromthefridge.typepad.com] 2005-01-27 8:55:09 AM|| Front Page Top

#11 On this subject, any Rantburgers know semiconductor materials "in, around and through"?

Posted by Dishman 2005-01-27 2:10:38 PM|| 2005-01-27 2:10:38 PM|| Front Page Top

#12 I see no one has risen to my cold fusion post. A shame becuase its perhaps the biggest story of my generation. Cold fusion will affect society as profoundly as the internal combustion engine.

Posted by phil_b 2005-01-27 6:04:23 PM|| 2005-01-27 6:04:23 PM|| Front Page Top

#13 soon as they prove it works, Phil

Posted by Frank G 2005-01-27 6:12:26 PM|| 2005-01-27 6:12:26 PM|| Front Page Top

#14 2xstandard: Our debt is financed upwards of 40% by foreign investors.

This doesn't mean that we need foreigners to finance the debt - it's a result of the fact that foreign central banks trying to depress the value of their currencies by buying dollars tend to prefer to park these dollars in relatively liquid instruments like Treasuries. At present levels, Treasury yields aren't attractive to American investors. If foreign investors pull out, and yields rise, the slack will be taken up by US investors, who have $34T in assets, dwarfing the $5T or so outstanding Treasury debt. In 2003, money market mutual funds alone held $2.3T in debt assets. This excludes corporate, other institutional and individual holdings of specific debt securities.

2xstandard: Our dollar's devaluation reflects foreign investors thinking it's unlikely we will pay back the debt.

If foreign investors thought this, they would stop buying US debt, causing interest rates to rise. In recent months, interest rates haven't changed.

The devaluation of the dollar is a result of the fact that foreign economies aren't growing, meaning that their economies aren't absorbing US goods. The US economy is growing, which has increased demand for foreign goods, driving down the US dollar, which may further slow down foreign economies, as goods from US companies crowd out goods made by local companies.

This is why foreign countries are complaining about the weak US dollar, not because they think a weak dollar is bad for the US, but because it's bad for them. Airbus is going to need massive subsidies because it now has to compete with a Boeing quoting the same dollar prices that it was before, whereas Airbus must increase its prices 50% in dollar terms just to make the same number of euros it used to make before the dollar fell.

Posted by Zhang Fei 2005-01-27 6:26:59 PM|| [http://timurileng.blogspot.com] 2005-01-27 6:26:59 PM|| Front Page Top

#15 When you consider that many companies have margins in the mid-single digits (percentage-wise), it's clear why Europe is complaining. American companies are going to clean their clocks. All the whining about central banks switching away from the dollar is just smoke-and-mirrors. They can't switch and have their companies remain competitive. And if they hold dollars to keep their home currencies weak, they need to invest these dollars in something. Only Treasuries have the kind of liquidity they need. US corporate or municipal debt won't do.

Posted by Zhang Fei 2005-01-27 6:45:30 PM|| [http://timurileng.blogspot.com] 2005-01-27 6:45:30 PM|| Front Page Top

#16 ZF, I would change "are going to" to "are starting to really". My own employer has seen a large surge in sales.

Posted by Dishman 2005-01-27 6:58:20 PM|| 2005-01-27 6:58:20 PM|| Front Page Top

#17 Frank, it works. The issue is a reliable manufacturing process for the cathodes.

Posted by phil_b 2005-01-27 8:30:01 PM|| 2005-01-27 8:30:01 PM|| Front Page Top

#18 ZF and Phil, I am not a trained economist so maybe my take on our twin deficits and our foreign indebtness and how the cost of oil is bad for us is wrong or too simplistic. I apologize if that is the case. However, what I've read from trained economists led me to view things as I do. Maybe they are wrong?

For example:
http://www.aei.org/news/filter.all,newsID.21611/news_detail.asp
"Washington Fiddles While the Dollar Falls" by Desmond Lachman who is a resident fellow at the American Enterprise Institute

Over the past two years, the dollar has shed almost 40 percent of its value against the euro. This has not been the mere result of the vagaries of the international capital market. Rather, it has been a reflection of the growing concerns in those markets about U.S. profligacy and about the increasing tendency of the United States to live considerably beyond its means. Never before over the past hundred years has the gap between U.S. imports and exports been so large in relation to the size of the economy. Never before has the U.S. been so indebted to foreigners as it is today. The deterioration of the U.S. net international investment position at an annual rate of 5 percent of GDP is now very much on Alan Greenspan's mind.

Contrary to what the Treasury would have us believe, the U.S. external payment imbalance is not a reflection of foreigners' hunger to invest in U.S. companies and in the U.S. stock market. Alas, those days went with the bursting of the equity bubble in March 2000. Instead, the main factor now holding up the dollar is the massive purchases of U.S. Treasury paper by foreign central banks, which now finance an unprecedented 50 percent of the U.S. external deficit. They do so not because they believe that the U.S. is an attractive place in which to invest. Rather, they do so as a means to keep their currencies cheap in relation to the dollar so as favor their export sectors.

Depending on foreign central banks to support the dollar is a very thin reed on which to base a dollar policy. Already some foreign central banks, notably those in India and Russia, are showing clear signs that they are tiring of having to accumulate ever-increasing amounts of depreciating dollar paper. They also fear the loss of domestic monetary control and inflationary pressures that flow from having to issue currency to prop up the dollar. It is only a matter of time before other central banks too balk at the potentially large costs to their balance sheets of continuing to pile up dollar holdings in magnitudes that have no historic parallel.

As Alan Greenspan suggests, any serious solution to the U.S. balance of payments problem must begin with a substantial reduction in the U.S. budget deficit as part of a strategy to improve U.S. savings performance.

It would be a grave mistake for Washington to count on endless forbearance in the world currency market while it fails to address the U.S. budget deficit problem. For when currency markets lose confidence, they can be brutal and they can wreak havoc on the equity and bond markets. One can only hope that Washington heeds the alarms already sounding in the currency markets and stops fiddling about the budget before it is too late.

Posted by 2xstandard 2005-01-27 10:10:24 PM|| 2005-01-27 10:10:24 PM|| Front Page Top

#19 My understanding is that the drop in the dollar is deliberate, specific policy on the part of the Bush administration. That is to say, he wants it to drop.

Posted by Dishman 2005-01-27 10:58:42 PM|| 2005-01-27 10:58:42 PM|| Front Page Top

#20 ZF is mostly right. In addition, the current account (trade) deficit and gov deficit are different things and only weakly related. For example, Australia runs a bigger trade deficit than the USA, yet gov revenues are strongly in surplus (by about as much in GDP terms as the US gov is in deficit). Germany and several other European countries run large trade surpluses and large gov debts. THERE IS NO NECESSARY RELATIONSHIP BETWEEN THE TWO.

So any statement that refers to both the USD and the US gov debt is largely meaningless. In very basic terms if you hold USD, then the most convenient way to hold them is in the form of US gov paper. If they don't hold USD then the gov finances its debt some other way (or doesn't finance it) almost exclusively a domestic issue. Which is where Greenspan is coming from. His remit is inflation and that will be the consequence. BTW the no historical parallels is complete nonsense, the UK was in an almost identical situation a hundred years ago when the pound was the world's currency.

Posted by phil_b 2005-01-27 11:43:38 PM|| 2005-01-27 11:43:38 PM|| Front Page Top

#21 dish, a devalued US dollar is a double edged sword for us, and once again I am looking at the issue based on a layman's readings of opinions from economists.

Yes, GWB had wanted the $ to be devalued a bit in hopes that our exports would pick up to close the gap on the trade deficit. But that did not happen.
In spite of the devalued US $, the trade gap increased.

And the cost of oil had to go up when the dollar's value went down, because most OPEC producers take a hit on a US dollar devaluation because the US dollar is the official currency for petroleum markets. Most of the OPEC countries are making most of their purchases of goods and services ( imports) from countries who use currencies other than the US dollar. So the OPEC countries need to raise prices of oil to make up for their losses the take for imports from the EU and China. American consumers get hit with the rising oil prices and foreign investors who own alot of our debt ( Lachman says it's over 50%) get nervous about devalued US dollars, which they own alot of.

It's kind of a vicious circle, but I think the bottom line is the federal government is getting way over its head with the 2 deficits growing and Congress merrily raising the ceiling for gov't borrowing. At some point in the very near future our nation will pay the price.

I read that the Social Security Trust will be the mitigating factor of reality speak to the USA if no other eventuality comes before it. At around 2016, the gov't can't borrow against the Social Security Trust surplus anymore because there will be too many geezers reaching retirement age all at once and drawing on Social Security.

Maybe ZF or Phil can shed more light on the pros and cons of a devalued US dollar.

Posted by 2xstandard 2005-01-27 11:44:50 PM|| 2005-01-27 11:44:50 PM|| Front Page Top

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