
The Real Price of Oil - davidiach
http://spectrum.ieee.org/energy/fossil-fuels/the-real-price-of-oil
======
Al-Khwarizmi
I see the point the author is trying to make, but in my view (disclaimer: not
an economist) the presentation lacks rigor and can be misleading. If you
adjust oil prices for the economic output that you get out of a barrel of oil,
then you no longer have a price _per barrel_. You have the price of the oil
needed to produce X dollars of GDP, which can be a useful metric, but you
should no longer call it a price per barrel as what you have effectively done
is replacing barrels with a different unit of oil (that varies in time
depending on oil intensity) in the calculation.

The result that making that adjustment stabilizes the prices (discounting the
peak in the 80s) is not surprising to me. As oil prices rise, the economy
adapts to use less oil, so the adjusted metric tends to an equilibrium. Isn't
that what supply and demand is supposed to do?

~~~
runholm
Ah, yes. Someone managed to find words for my thoughts. I was left with the
same impression that the author had adjusted for multiple factors, to the
point that the result was not presenting the same data as he started with.
Good that someone could spell it out :)

------
CookieMon
> This measure, usually called the oil intensity of the economy... ...is
> calculated by dividing the total national oil consumption by GDP expressed
> in constant monies.

So it's not taking into account the increased offshoring of our economy's oil
and energy consumption, and the article chalks everything up to increases in
efficiency (or switching to coal).

[http://ourfiniteworld.com/2011/11/15/is-it-really-
possible-t...](http://ourfiniteworld.com/2011/11/15/is-it-really-possible-to-
decouple-gdp-growth-from-energy-growth/)

~~~
barrkel
Economic efficiency is basically GDP / input, with the input chosen by what
you're trying to measure the efficiency of. It's extremely approximate as a
measure of anything real. It's easily skewed because GDP isn't a particularly
good measure to start with. It's hard to take measures that use GDP very
seriously for countries with large offshore banking sectors, for example.

------
IkmoIkmo
I thought I'd read an article about new studies that put a value on the
various externalities of oil using industries (e.g. pollution, congestion,
motor accidents, climate change etc). Instead I got an article that pretends
to show some 'actual' price of oil by mixing scales on one axis and presenting
a dollar-denominated oil intensity as a 'price of oil' which is just
misleading and not terribly interesting because for one it's nothing new and
moreover it ignores a whole bunch of factors like outsourcing production to
other countries (moving your consumption off the country's books doesn't
magically mean it doesn't exist).

~~~
13thLetter
It's not the articles's fault that it wasn't about a topic that interests you.

------
fulafel
The real cost is in the externalities: CO2 emissions -> climate change ->
costs

~~~
robotkilla
According to a documentary I recently watched (Cowspiricy) the biggest cause
of CO2 / deforestation / climate change is the agricultural industry - I need
to research the numbers presented in the documentary as it was eye opening and
I want to be sure I'm not just being sold a vegan agenda.

~~~
tslug
I haven't found any evidence refuting Cowspiracy's claims, unfortunately,
which has cornered me into eating vegan for going on two weeks now.

If healthy vegan food were subsidized as it should be, most of the issues with
limited food/dish selection would probably be addressed in no time.

~~~
robotkilla
I'm probably a horrible person for saying this, but I'm not going to change my
diet for this as I don't think there will be a widespread vegan movement based
around this (one large enough that will truly disrupt the system I mean).

I think it has to become a political issue enforced with regulations.

------
ilurk
Excuse my conspiracy theorist but this article almost sounds like PR.

#1 World Oil Demand Still Growing

[http://www.schwab.com/public/schwab/nn/articles/Black-Dog-
Ar...](http://www.schwab.com/public/schwab/nn/articles/Black-Dog-Are-Plunging-
Oil-Prices-a-Positive-or-a-Negative)

#2 The Dow Jones still looks pretty good despite the tumble to 2014 levels

[https://www.google.com/finance?q=INDEXDJX%3A.DJI&ei=flkKVsud...](https://www.google.com/finance?q=INDEXDJX%3A.DJI&ei=flkKVsudGIjPUfCvhYAG)

#3 Shangai index it at 2014 EOY levels

[https://www.google.com/finance?q=SHA%3A000001&ei=mFsKVrjhEYu...](https://www.google.com/finance?q=SHA%3A000001&ei=mFsKVrjhEYuWUJyakNgF&hl=en)

#4 Crude oil price is at 2009 and 2004 prices

[http://www.macrotrends.net/1369/crude-oil-price-history-
char...](http://www.macrotrends.net/1369/crude-oil-price-history-chart)

So either the oil price is being pushed down now, or it was pushed up before
on multiple occasions, and will liked be pushed up again somewhere in the
future.

~~~
jdimov9
Both. Saudi Arabia has been artificially inflating the price of oil for a
number of years and is now artificially keeping it low to hurt competitors.
Unfortunately for them, this is already hurting Saudi economy more than
anticipated and is increasingly looking like a fatal mistake.

------
SixSigma
I think one should consider that GDP itself is a grossly flawed metric.

------
rtpg
> Average prices of WTI rose roughly 52-fold between 1970 and 2014, in current
> dollars

Surely that can't be right? Wouldn't that mean that 2014 price = 1970 * 2^(52)
?

~~~
Turbo_hedgehog
Never. -fold is times, so it's 52x

~~~
colechristensen
[http://www.etymonline.com/index.php?term=-fold&allowed_in_fr...](http://www.etymonline.com/index.php?term=-fold&allowed_in_frame=0)

Even though one might think it's 2^x (fold something in half twice and it's 4
times as thick, three times and it's 8, etc.) it's actually a rather archaic
usage for multiplying.

~~~
SamReidHughes
Imagine a fan-fold.

~~~
bottled_poe
I think the point is that the term is ambiguous.

~~~
SamReidHughes
It's not.

~~~
AnimalMuppet
No longer as common as it used to be, perhaps even archaic, but not ambiguous.

------
diminish
Pricing of oil is directly managed by an oligopoly of players (govs, large
corporations etc) on the supply side, and a diverse group of buyers with few
main clusters on the demand side.

Stats, inflation, intensity can be misleading to deduce "what oil should
become".

A game theoretic approach seems to be better, where main players are observed
based on their moves and the outcomes with probabilities.

------
AtomicOrbital
Price of oil must factor in cost of military presence in Middle East which
should be incurred directly by oil companies, not tax payers. Once such
adjusted, green energy renewables suddenly become cost effective

------
unusximmortalis
Free markets, heh?

~~~
pjc50
Funny you should say that, given that oil is the classic example of a market
controlled by a cartel of non-free governments.

~~~
ZenoArrow
Oil cartels can exist without government intervention, the free market does
not guard against collusion.

~~~
baldfat
Collusion and Monopolies are the greatest enemies of a free market. Collusion
and Monopolies = secretive agreements to limit Free Markets.

Collusion and Monopolies happen all the time. The number one defender of
Collusion and Monopolies seem to be mos tLibertarians.

~~~
saltedshiv
That's a mischaracterization. Many libertarians believe that perpetual
monopolies cannot exist in a free market due to competition. So even though a
cartel might form for some time or a company may hold a monopoly on a product,
if the prices are not at true market value (too high, inflated, not
competitive enough), a competitor will enter the space and undercut the
monopoly.

If you're interested in reading more on the topic, search for keywords:
rothbard, myth of natural monopoly

~~~
ZenoArrow
Doesn't work if the incumbent companies are selling natural resources and have
access to all resources in question.

To illustrate, imagine we were in a free market and I wanted to start an oil
company to disrupt the prices of an oil cartel. How am I going to do that if I
don't have any oil?

~~~
saltedshiv
I'll counter that illustration. Let's assume that there is no oil left that
doesn't have claim by an oil company and therefore you are unable to compete
directly in the oil manufacturing business. But, what you are really saying is
that you think that the price for what utilization oil brings is too high, and
thus you can compete with oil with another resource. This means that you could
invest in whale oil, coal, solar, wind, natural gas, or nuclear, or something
else. If the price of oil is too high, then there is large amounts of
incentive to invest in something that might not even exist.

By offering those resources to the same spaces that utilize oil, you are
competing with oil. If you are able to take customers from oil, oil will be
forced to reduce their prices.

As I mentioned in the previous comment, you should check out the keywords I
mentioned. And if you are thinking that I'm missing something, please direct
some resources my way.

~~~
ZenoArrow
You have to have an option that is better than oil, otherwise it wouldn't
work. Imagine if car fuel prices were being kept artificially high, how are
you going to compete? If you invest in something new, it has to be better than
oil. We're lucky in this case that electric cars have numerous benefits, but
suppose for a second that they didn't exist. It's possible to run a car on
natural gas, coal, etc... but there are hugh costs to competing... investment
in new vehicles and investment in service stations and fuel transport being
some of the biggest costs. And who's to stop the oil cartel waiting for you to
launch, lowering their prices to undercut you, waiting for the competition to
fail, then jacking prices back up again?

