Business – O'Brien International

Peak oil demand?

The graph shows US consumption of oil, not in barrels, but in quadrillions of BTUs (“quads”).

Topline figures: Consumption in 2005 – a little over 40. And the peak. Consumption in 2015: Just under 35.

Call it decline of 5.5 — or about 13%.

That’s part of why the Saudis keep pumping — demand really has dropped off that much. Even as US GDP has grown from $13.1 trillion to today’s $16.8 trillion.

Let’s say that again — oil use in energy terms has fallen 13% while GDP has grown by 28%. It took roughly 3 quads of energy from oil to make a trillion dollars of GDP in 2005. Today it takes roughly 2 quads.

So it isn’t just the US is producing more oil of our own. It’s also we’ve become much more efficient at using it.

It’s a mystery

See that graph there? That’s the price of oil for the period 2013 through 2015.

Here’s the question: Why has oil fallen in price so dramatically?

I know what the standard answer is — The US has had the shale oil boom, and become nearly self-sufficient, and that increase in supply has led to the fall.

But there’s a problem with that. Saudi Arabia.

I was listening to the BBC’s World Service earlier today, and they had an interview with someone giving a bracing analysis of the conditions in Saudi. Austerity as far as the eye can see, with major projects being cancelled, all because their population is rising, even as their oil revenues have dropped off.

I had to ask: Why?

It’s been a given for decades that the Saudis are the swing producer in global oil production. The price of oil largely depends on how much oil Saudi Arabia brings to market.

So why haven’t they reduced their output? Why haven’t they taken steps to offset whatever increases the US may be bringing to the market, so the price can be stable? Why are they risking their own internal stability by allowing oil supply to be so high it depresses prices?

The only thing I can guess is… The Saudis are scared to death of a dropoff of demand. Which would cause oil prices to slump even lower.

This has always been my problem with the Peak Oil hypothesis. If we really are so close to the peak, and thus a dramatic increase of price, every barrel of oil sold today forgoes that future higher price. So, why sell oil on what is essentially a discount? Why were the Saudis selling like there was no tomorrow?

Again — the only thing I can think of (and I would welcome a different idea) is the Saudis are frightened demand is a will of the wisp, and subject to collapse.

How much oil do the Saudis have? What do they think of their prospects to sell that oil in the future? Look at what the Saudis do, not what others say.

Paulson

Last night I started reading Hank Paulson’s book, Dealing With China. I’m still in the Introduction, and distracted by the howlers.

For example, Mr. Paulson to the contrary, China is not the largest holder of US debt — the US is. There’s slightly over $18 trillion of US debt. Foreign holders have only $6 trillion of that, or about one-third. The other two-thirds Americans owe to each other. Even among foreign holders, Japan is the largest holder, although that just happened in February of this year, and given long lead times for books Mr. Paulson may be forgiven for that specific oversight.

He also claims the US relationship with China is “our most important bilateral relationship.” Given who our largest trading partner is, and that we share a 5500 mile peaceful border with them, I’m fairly sure our most important bilateral relationship is with Canada, not China. Especially on a military basis — the fact our border hardly needs protecting because we’re so secure with Canada as a neighbor gives us a huge advantage over states not so fortunate.

And while it’s not a howler as such… In over 100 visits, Mr. Paulson says he’s learned no Chinese. Even I recognize 中国, and 你好. No intellectual curiosity at all, eh, Hank?

¿Qué?

My wife and I were eating in our local taquería. They had the television tuned to Univision, as they usually do.

I saw a commercial for Microsoft Windows. From Microsoft, en Español.

Which was very strange to me, because when I was most familiar with Microsoft’s internal structure, I knew they had no Spanish-language product support.

According to this phone list at their web site, they still don’t. Moreover, Microsoft’s Spanish-language website isn’t based in the Western Hemisphere, but in Spain.

It continues to confound me how Microsoft can show such contempt to a large segment of the US market — one they’re advertising to, no less.

Is It Hot In Here?

I’ve been saying for years it’s a very curious thing US businesspeople are so averse to environmentalism in general, and mitigating climate change in particular. My reasoning is, almost all the measures to do such mitigation boil down to doing more with less — and isn’t that the classic definition of increased productivity, and thus profits?

Well, I now have some company in this view: the New Climate Economy Project, the International Monetary Fund, and an economist who’s won the Nobel that isn’t a Nobel.

A fairly interesting bunch with whom to kibitz.

Bitcoin Shakes Its Mighty Fist Again

#480262435 / gettyimages.com

From this LinkedIn thinly-veiled advertisement:

“Bitcoin is digitized money… Bitcoin is eliminating or dematerializing the use of physical money (bills and coins), even credit cards.”

My reply:

US Annual GDP: $15.68 trillion
Actual physical cash in circulation (M0): $4.1 trillion
“Dematerialized” money that circulates every year: $11.6 trillion, or 74% of GDP

There already is a dematerialized, digitized currency, one in wide circulation, and nearly universally accepted by the market. It’s called the US Dollar.

I know, I know… You’re all in favor of the free market. Right up until the market disagrees with you.

Oh, BTW:
Total value of circulating Bitcoin: $6.2 billion.
Percentage of the value of M0 dollars in circulation: 0.2
Percentage of value of US GDP ($15.68T): 0.03
Percentage of value of global economic product (given that Bitcoin isn’t tied to any one state, and thus competes in a global market) ($71.83T): 0.008

To rephrase a newspaper headline of the 1970s: “Free market to Bitcoin: Drop dead.”

Context

Here in Seattle, there is much talk about the recent City Council vote to raise the minimum wage to $15/hour.

That’s mostly a local issue, but one aspect has broader implications. Many franchisees of international brands – McDonald’s, Subway, Starbucks, etc. – are protesting they’re being treated as parts of their larger brands, rather than the small family businesses they see themselves to be.

This strikes me as wanting to have it both ways. They want the customer to think they’re part of the larger brand, even as they want the local authorities to treat them as the oppressed local little guys. Being largely an advocate for the customer, I find this curiously deceptive.

If what’s genuinely wanted is this mix of international brand and local affinity, perhaps renaming their businesses is in order. “Bob Smith’s McDonald’s,” “Gurinder Singh’s Starbucks,” and the like.

Don’t try to sell the big brand to the customer, and the small identity to the law. If you want both, do both.