Kaplan Says Rising Oil Prices Won't Hurt US Economy

[Seleskya + 50]

The Fed's Kaplan is now saying that higher oil prices shouldn't really hurt the U.S. economy much, because US is producing more and businesses are apparently being more effective with their fuel use. I'm not an economist, but would love to hear more from anyone that is. ... 

https://www.reuters.com/article/us-usa-fed-kaplan/feds-kaplan-sees-muted-economic-hit-from-any-oil-price-rise-idUSKBN1JF1XE

 

[BillKidd + 139]

A geologist, Art Berman, has been speaking negatively about the shale game for many years... saying (and giving stats) that hardly any oil company is making money. He says that if oil goes real high again, it will crash the economy, saying that it always has, so, why would the next time be any different. I think he has said that, for instance, if we get $3.75 or $4.00 gasoline again, that's too high for the economy.

[Tom Kirkman + 8,860]

Hey Kaplan ...

 

[DanilKa + 443]

that's Fanny. pun intended...

[TraderTate + 186]

so no one agrees with Kaplan's assessment?

[Tom Kirkman + 8,860]

7 hours ago, TraderTate said:

so no one agrees with Kaplan's assessment?

Kaplan's assessment that rising oil prices may not hurt the U.S. economy may not be all that incorrect in my opinion.

However, since my viewpoint is more toward global oil & gas rather than any specific country, on the whole I tend to think that higher oil prices will impede global economic growth.

[Jan van Eck + 7,558]

1 hour ago, Tom Kirkman said:

Kaplan's assessment that rising oil prices may not hurt the U.S. economy may not be all that incorrect in my opinion.

However, since my viewpoint is more toward global oil & gas rather than any specific country, on the whole I tend to think that higher oil prices will impede global economic growth.

At the risk of being a "yes and no" guy, I will say "Yes and No" to your postulation.  And here's why:

Let us take an example:  aircraft built since WWII.  Over in the old Soviet Union you have the Yakovlev Aircraft Design bureau and their building plants, churning out the Yakovlev Yak-42 transport airplane, a machine with three motors in the back  (a bit like the old Lockheed L-1011) and good for 100-120 seats.  Those machines were known as "kerosinovyy svin'i,"   which roughly translates to "kerosine hog," for the vast amount of kero they would burn through.  Yet today those same 100 passengers can board a fabulous Canadian Bombardier C-100 machine and travel with the engines just gently sipping the stuff. The C-100 is a 2017 machine,launched some 40 years after the "hog."  Without knowing the numbers, I  would hazard a guess that it burns less than half of the Yakovlev 42. 

So what is happening is that as prices go into the stratosphere, the tech wizards put on their thinking caps and figure out ways to use less and less of the stuff and still keep the same or better performance.  And you see this in all manner of products in the transport sector.  And again for example, in the old days US buses (OK, built in Winnipeg, but still...)  would crank along on geezy old two-cycle diesels emitting vast amounts of black smoke, which was unburned or partly-burned fuel.  Then in about 1990 Roger Penske of racing fame buys Detroit Diesel and introduces the Series 60 in-line 4-stroke diesel with DDEC electronic control, and the fuel burn finally breaks down below the 0.300 barrier, achieving an astounding 0.294 lbs fuel per hp.hr.   Note that even the Prius back-up engine rates in at 0.370, or some 20% higher in specific fuel consumption, so Roger Penske certainly knew his trade! 

And in that vein, Wartsila, the Finnish builder of heavy diesels for very big ships, has a new engine out there with a rating of 0.271 lbs/hp.hr.  So what is happening is that technology, that forgotten engineering sector of slide-rule guys, keeps squeezing more power out of each gram of fuel,  while the kerosinovyy svin'i  of old Mother Russia and the USSR get buried in the dust. 

And that is the big advantage of the West: it can handle those higher fuel prices because over the past 40 years the engineer guys in the back room have been figuring out how to use less and less.  Smart guys, those engineers. 

Edited June 21, 2018 by Jan van Eck

[DanilKa + 443]

Rising oil price hurt US economy without exception, just like rising Fed interest rates. 

Recall late Mike Economides was showing us graph correlating aviation kerosene price to unemployment (with a lag).

[Tom Kirkman + 8,860]

Heck Jan, I surrender.  Your writing and debating skills are certainly better than mine.

And congrats on getting to the top of the Leaderboard this month; very well done : )

[Jan van Eck + 7,558]

6 minutes ago, Tom Kirkman said:

Heck Jan, I surrender.  Your writing and debating skills are certainly better than mine.

And congrats on getting to the top of the Leaderboard this month; very well done : )

Yup, never underestimate those immigrant guys.  Next thing you know, they actually end up learning English!  

And PS, the title is not truly earned, that last set of votes were from you!  (Still, nice to be appreciated). 

Cheers from Vermont,

J.

[Tom Kirkman + 8,860]

15 minutes ago, Jan van Eck said:

Yup, never underestimate those immigrant guys.  Next thing you know, they actually end up learning English!  

And PS, the title is not truly earned, that last set of votes were from you!  (Still, nice to be appreciated). 

Cheers from Vermont,

J.

Heh heh, no worries, your comments are worth the upvotes.  Cheers from Malaysia.

P.S. wanna play for a million points?

 

[Jan van Eck + 7,558]

1 minute ago, Tom Kirkman said:

Heh heh, no worries, your comments are worth the upvotes.  Cheers from Malaysia.

P.S. wanna play for a million points?

 

WHOA!   Hey, Tom, you are a retired guy, me I's still a pooh' boy, so I gotta work and bring in the buckos!  

I do this to hone my English writing skills  (I did "accent removal," Ahhnold style, some years back) (you remember that on-stage production where Schwarzenegger said "accent removal" in that inimitable Austrian? He hadn't quite gotten there.) and because I remain fascinated by the subject matter, although you guys know vastly more about it than I do. So, I cede the throne back to you and Mr. Edwards and take up my sentinel post behind the drapes.  God Save the King!  (Holland or England, I don't mind.)  

PS:  I'm now up to 50,000 words in English, amazing what antique old age will do to you.  Cheers,

[Jan van Eck + 7,558]

In all seriousness, I will say that the one aspect of oil consumption that sends shudders through the producing nations is product substitution.  It is not just, or merely, the reduction in demand that flows from the "experience curve," where the slide-rule engineer guys figure out how to use less and less; it is the disruptive shift(s) that comes from the fracture in the usage curve when some new innovation obsoletes old use. 

To illustrate this truism, I point you to the burning of coal in England, to drive the steam pumps to remove water from the mines in Cornwall.  Those mines produced tin, and likely copper, valuable industrial metals with a base use in consumer goods such as  pots and pans.  The copper especially was alloyed into various metal combinations for sleeve bearings, and the wear surface metal that could be replaced over time, but that would avoid "galling," where metals of roughly equal hardness would tear and plate onto each other, ruining sleeve bearing surfaces.  The copper-based alloys thus avoided the problems you got into if you made both surfaces of a crank connection out of iron; the insertion of the copper alloy protected the joint and allowed oil to flow to lube the joint for long life. 

So you had these mines in Cornwall and they proceeded to flood, and the bright engineers of the day developed steam engines from coal to pump those mines dry.  The first generation of those donkey engines worked on the vacuum principle, with steam driving out the air in a reservoir and cold water then introduced as a spray to condense the steam and create a vacuum, allowing a connected piston to pull water.  As you might imagine, they consumed vast amounts of coal. 

Time marches on and the engineers get on that experience curve, and develop steam pressure engines which run at steadily higher pressures, all the way up to 270 lbs., and less and less of the coal resource is needed per mine.  But the paradoxical effect is that the thriftier use of that coal, plus the development of those engines, creates a vastly wider market for coal, so much more is used, and it spreads into central water pressure stations for cities, and into steam engines on the railroads, and into steamships on the oceans. 

And then what happens is that yet another tectonic shift takes place, when the engineers develop the electric motor.  And now NO coal is needed for the mine de-watering or the city water distribution system or the railroad, as electrification takes over.  And there goes the coal industry. 

Don't think that oil is immune to these historical forces.  And that is the big nightmare of the oil producing States - some day, nobody even wants the stuff. [Which is why I predict the price of crude is headed back to twenty bucks].

[Tom Kirkman + 8,860]

29 minutes ago, Jan van Eck said:

WHOA!   Hey, Tom, you are a retired guy, me I's still a pooh' boy, so I gotta work and bring in the buckos!  

Nope, not retired, still working.  I don't view my volunteer moderating and commenting on an Oil & Gas forum as off topic for my profession in O&G.  Reading (or at least scanning) all of the posts and comments here helps me keep abreast of the current international O&G developments.

And well done on your mastery of the English language.  My wife speaks 7 languages, but I can only speak 1 (I still have dyslexia, learning foreign languages is not something I have been able to accomplish).

[Jan van Eck + 7,558]

Just now, Tom Kirkman said:

  My wife speaks 7 languages, 

Whoa!  Kudos to your bride!  That is seriously impressive! 😊

[John Foote + 1,135]

Also, the plus and minus impacts differ widely across the country. In Texas, mostly a big Yahoo! with moderate oil price increases. Everyone loses if we go way high, accelerating a boom/bust. Every energy source in history previous to oil has lost dominance, and it's a better alternative that drives it. It's a when, not an if. Coal, for all the decline, still provides a lot of btus, but the jobs and profits aren't there like before. Oil and gas has a long run yet. But proportionally, other energy sources will probably grow. Even harnessing tides works with high price energy. The amount of energy waste in the world is staggering, and it's not because we hate the environment, it's cheap to waste, typically cheaper than conservation. Look at all the packing just to buy a phone. High prices drive change.