The New Economics of Oil

A blog about business and economics.
Feb. 17 2012 11:06 AM

The New Economics of Oil

Via Brad Plumer comes a Citigroup research note arguing that the Peak Oil thesis is dying right now in North Dakota where shale oil production is surging.

1329494749606

I'm not sure I buy that, but it's unambiguously true that the short-term supply situation now looks different than what we've come to expect in recent years. Recall that for a while we had the OPEC paradigm under which Saudi Arabia had oil that was cheap to extract but that it would hold off the market in order to boost the price. Then if global supply was disrupted or demand surged, Saudi Arabia had the ability to open the spigots and prevent the price of gasoline from spiking. Alternatively, OPEC could deliberately throttle supply and push prices up. But in recent years that excess supply evaporated, creating a situation where global growth led naturally to big increases in gasoline prices. That has, of course, macroeconomic consequences. In particular, insofar as oil exporters like to recycle their earnings into U.S. Treasuries even at a time when the U.S. was operating under a zero interest rate policy, it served as a kind of passive monetary contraction. Demand for dollars and dollar equivalents would surge without an offsetting policy response from the United States.

Advertisement

But thanks to the shale oil there are now some new factors in play. One is that a rise in demand for oil stimulates investment in domestic U.S. production and related activities. The other is that various factors have turned the United States into a net exporter of refined petroleum products even as we remain a large net importer of crude oil. That means that the precise structure of the difference between the price of gasoline (and jet fuel, etc.) and the price of oil is now relevant in a way that hasn't normally been the case. The price of crude oil is obviously related to the price of gasoline, but they're not identical, and now that America imports the raw product but exports the finished product, the spread and not just the headline prices are relevant to our balance of payments.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Meet the New Bosses

How the Republicans would run the Senate.

The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Cheez-Its. Ritz. Triscuits.

Why all cracker names sound alike.

Friends Was the Last Purely Pleasurable Sitcom

The Eye

This Whimsical Driverless Car Imagines Transportation in 2059

Medical Examiner

Did America Get Fat by Drinking Diet Soda?  

A high-profile study points the finger at artificial sweeteners.

The Afghan Town With a Legitimately Good Tourism Pitch

A Futurama Writer on How the Vietnam War Shaped the Series

  News & Politics
Photography
Sept. 21 2014 11:34 PM People’s Climate March in Photos Hundreds of thousands of marchers took to the streets of NYC in the largest climate rally in history.
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
  Arts
Television
Sept. 21 2014 9:00 PM Attractive People Being Funny While Doing Amusing and Sometimes Romantic Things Don’t dismiss it. Friends was a truly great show.
  Technology
Future Tense
Sept. 21 2014 11:38 PM “Welcome to the War of Tomorrow” How Futurama’s writers depicted asymmetrical warfare.
  Health & Science
The Good Word
Sept. 21 2014 11:44 PM Does This Name Make Me Sound High-Fat? Why it just seems so right to call a cracker “Cheez-It.”
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.