Jason Barton

Professional Information and Energy News

Archive for the ‘World Economies’ tag

Petroleum’s Centrality, Volatility, Damage World Economies

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Processes such as innovation and competition are vital to enhancing world economies, but both of these are stifled in the world of petroleum. Either a place has oil, or it doesn’t, so there’s little place for either one.

True, there can be innovation in terms of the technology used to extract oil from hard to reach places such as the tar sands of Alberta or the floor of the Gulf of Mexico. But this is nothing like the innovation that is taking place in the competition to produce technologies that provide domestic, renewable, cost effective energy.

The article below highlights the pitfalls of our economies’ current dependence on an energy resource that is so subject to the swings we saw in 2008, when oil went from over $140 per barrel in August to only $40 in December. Petroleum’s centrality, its concentration in few places, such as North Africa and the Middle East, are further problems that should continue motivating us to find ways to reduce this reliance on a non-renewable resource.

Oil and the economy

The 2011 oil shock

More of a threat to the world economy than investors seem to think

Mar 3rd 2011 | From The Economist print edition

THE price of oil has had an unnerving ability to blow up the world economy, and the Middle East has often provided the spark. The Arab oil embargo of 1973, the Iranian revolution in 1978-79 and Saddam Hussein’s invasion of Kuwait in 1990 are all painful reminders of how the region’s combustible mix of geopolitics and geology can wreak havoc. With protests cascading across Arabia, is the world in for another oil shock?

[…]

Even without a disruption to supply, prices are under pressure from a second source: the gradual dwindling of spare capacity. With the world economy growing strongly, oil demand is far outpacing increases in readily available supply. So any jitters from the Middle East will accelerate and exaggerate a price rise that was already on the way.

[…]

By contrast, the biggest risk in the emerging world is inaction. Dearer oil will stoke inflation, especially through higher food prices—and food still accounts for a large part of people’s spending in countries like China, Brazil and India. True, central banks have been raising interest rates, but they have tended to be tardy. Monetary conditions are still too loose, and inflation expectations have risen.

Read the entire article here.