EconAir

There is a story, possibly true, that when the British surrendered to American and French forces at Yorktown, effectively ending British rule of America, someone in the British army sang or played an old English folk song, “The World Turned Upside Down.”    (See https://en.wikipedia.org/wiki/The_World_Turned_Upside_Down ) I think I know how the British felt.   Many of the assumptions economists have made about economic reality and economic policies now seem out-of-date or even reversed. UNITED STATES The Fed fought inflation; now it sets inflation targets when there is no inflation. The Fed worries about deflation even though the major source is a fall in energy and commodity prices. Another source is the fall in the prices of technology products. There is a large increase in the money supply, large government deficits, a large trade deficit, and a large decrease in the unemployment rate. Economic theory and past experience says that there should...

Saudi Oil Minister BACKGROUND INFORMATION Oil is measured in barrels. A barrel is 42 gallons. Total global daily production is around 96-97 million barrels/day. Saudi Arabia, Russia and the United States all produce around 10 million barrels a day.   With their allies, these three countries account for close to 40% of global production. Because of the improved technology of shale oil production, U.S. output has gone up almost 5 million barrels/day since 2008. Currently, total global production is greater than total demand by somewhere between one and three million barrels/day. There are record amounts of oil in storage. A small percentage increase of supply over demand has led to a large decrease in price. In the fall of 2014, a barrel of oil cost about $100/barrel.   Last month the price fell to around $30/barrel.   Since then, it has rallied to around $40/barrel. THE ECONOMICS AND GEOPOLITICS OF OIL The economies of seven...

Saudi Arabia Oil Minister U.S. Oil Production E nergy prices could go up at the same time that energy production could continue to decrease, although not as much as simple supply/demand forecasts would expect (see prior post).   Crude oil prices would have to rise from current $35/barrel level to at least $50/barrel to stabilize production and over $60/barrel to start increasing production.   Similar percent increases would be needed for natural gas. For most shale oil and natural gas producers, virtually all operating revenue is now going to debt payments.   After hedges come off, the number of bankruptcies and “distressed debt” will accelerate in second quarter of 2016.   The companies can continue production but bondholders, lenders and stockholders will suffer even larger losses.   This trend has already started in the junk bond market and the fall of public oil companies’ stock prices. Why Saudi Arabia Misjudged U.S. Oil Production ...