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$200 Oil Revisited – And Still Looks Good

By Econintersect LLC (Steven Hansen)CommoditiesApr 29, 2012 12:17AM ET
www.investing.com/analysis/$200-oil-revisited-%E2%80%93-and-still-looks-good-121555
$200 Oil Revisited – And Still Looks Good
By Econintersect LLC (Steven Hansen)   |  Apr 29, 2012 12:17AM ET
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I am deviating somewhat from my weekend think pieces on sectors of the economy and returning to my past life in global infrastructure development. I am at a  convention of sorts, of energy industry professionals who are at the front lines of implementation of energy processes – not the fat cats viewing the world from the 40th floor.

The consensus is that the world is far from peak energy if cost is ignored. The difference between professionals and politicians is that professionals explore all options – and are only removed from the table for technical issues (such as process reliability, costs). Environmental issues play second fiddle to professionals – not because environmental issues are not important – but because environmental issues are solved through the design and process improvement cycle. Even after processes come on line, they are constantly reformed for a variety of issues – including cost and environmental.

This natural flow is called continuous improvement. No successful organizations limit development of options or block continuous improvement cycles.

I listened to field tests being done in oil / gas extraction, nuclear and renewables. No one believed any one form of energy had the potential to dominate based on cutting edge technologies on the drawing boards. However, as a group – we believed when viewed as whole, there is no reason for a net importation of energy into the USA. Instead of forcing stricter regulations (such as done with auto industry fuel consumption) – government policies literally have removed coal and nuclear from the table, while significantly restricting expansion of gas and oil “mining” and pipelines.

  • I am not a big fan of coal, especially the big lignite fueled power stations in the West based on current methodology. Wasting 1/3 of the potential energy output on environmental systems (bag-houses and precipitators) means we are wasting much of this resource ahead of its time when technology could prevent this waste.
  • The current crop of nukes had a 40 year design basis – and they need to be replaced with the new “fail safe” technologies. To most of us building this past generation of nukes, the concept of suppression pools to contain a loss-of-coolant (LOC) accident was viewed as peeing on a forest fire.  Current state-of-the-art plants are exponentially safer as LOC situations are theoretically prevented.
Based on current technology and price structures – the reason the USA is not energy independent is only political. The USA could not be energy independent at spot oil prices of $38 per barrel.  At $100, massive hydrocarbon reserves which are now commercially extractable within USA property lines.  Combine this with “fail safe” nuke power generation, natural gas, renewables, and continued emphasis on conservation.
Z-Weekly
Z-Weekly

Interesting on the above graphic that the EIA sees a falling share of GDP consumed by energy.
 
Back in August of 2008, I posted a piece at Seeking Alpha arguing $200 oil may be a good thing for the USA (note: I have re-posted in its entirety below). Long term, high energy costs favor local made products. No question high energy prices are disruptive, but over long spans so are trade imbalances.

Politicos criticize China for developing an export centric economy, yet roughly half of the current USA trade deficit is oil. It seems politicians not only do not explore options, but are good at transferring blame of conditions they cause to others.

Other Economic News this Week:

The Econintersect economic forecast for April 2012 shows a less good growth. There has been a degradation in our government and finished goods pulse points.
 
ECRI has called a recession. Their data looks ahead at least 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown but the recession start has been revised to hit around mid-year 2012.

This week ECRI’s WLI index value declined for the second week in a row to 0.6 – after the previous twelve weeks of index improvement. This index continues to indicate the economy six months from today will be marginally better than today.
Z-Weekly Indexes
Z-Weekly Indexes

Initial unemployment claims essentially increased from 386,000 (reported last week) to 388,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – rose from 374,750 (reported last week) to 381,750. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.
Z-Unemployment
Z-Unemployment

Data released this week which contained economically intuitive components (forward looking) were rail movements, trucking, and CFNAI. Rail movements this week were good if one ignores coal.  Both trucking and CFNAI were weak but clearly expanding.

Weekly Economic Release Scorecard:

Click here to view the scorecard table below with active hyperlinks.
Weekly Economic Release Scorecard
Weekly Economic Release Scorecard

Bankruptcies this Week: None
$200 Oil Revisited – And Still Looks Good
 

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$200 Oil Revisited – And Still Looks Good

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