However, few people know that he has a pretty sophisticated understanding of oil.
"Many decades ago, I was awarded a PhD for researching oil prices and their consequences," writes O'Neill in latest Viewpoints letter.
So, what insight can he offer regarding the surging oil prices?
Unfortunately, not much. His note is a minefield of caveats.
As I am occasionally fond of saying, I am not sure I learnt much in the nearly 3 years it took me to complete the research. Perhaps two things, one, doing an economics PhD in those days was basically a test of one’s sanity. Two, forecasting oil prices makes forecasting foreign exchange markets seem relatively easy (I learnt that later on really)...
...
Anyhow, what level of oil prices will start to cause renewed damage in terms of inflation and depressing real incomes? Unfortunately none of us know.
Eventually, he does go out on a limb to say that he's not too concerned about the current level of oil prices.
And, in reality, I am of the school that quite strongly believes it is probably best seen in terms of oil-price-adjusted financial conditions to observe how strong or not any real economic damage can be. In this regard, so far, and especially because many leading nations continue to undertake steps to ease financial conditions – China and Japan being the two most important recently – it is probably not yet much of an issue. At some stage, though, it could become one.
O'Neill also shares some interesting insights as to how we should be looking at oil prices.
One aspect to all of this that increasingly fascinates me is the difference between “spot” prices and longer term prices. For many years, I have wasted time trying to think of the Holy Grail of the “equilibrium” oil price and, in this search, I settled on using the 5-year price as a simple broad guide. The attached chart shows the path of the 5-year price alongside that of the spot price. In my judgment, the 5-year price is probably a better guide of the true underlying supply and demand forces. In this regard, the chart shows an increasing divergence between the two as contrary to the 2000-08 and immediate post 2008 meltdown, the long term price appears to have “stabilized “ in an $80-100 per barrel range.
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It's interesting that despite earning his PhD in oil prices, none of O'Neill's 11 predictions for 2012 addresses it.
SEE ALSO: Goldman's Jim O'Neill Presents His 11 Predictions For 2012 >
Unless we have hyper-inflation of our currency.
"
Asked how to curb such speculation, Saudi Arabia's OPEC governor suggested "improving transparency" — a reference to the fact that most oil trading is conducted outside regulated markets — and better communication among the world's commodity markets so that oil speculators can't hide the full extent of their trading positions.
He also suggested that the U.S. consider "position limits" — restrictions on how much of the oil market a company can control — something the CFTC is considering. But the proposal to prevent any single trader from accumulating more than 10 percent of the oil contracts being traded hasn't received final approval, and the CFTC also has yet to define what it considers excessive speculation."
Here is the solution. Dah?
Why do we Americans allow such BS?
Are we that shallow? (don't answer)
http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html#storylink=omni_popular
"Blaming commodity prices on futures markets is like blaming the fact that you are ugly on your mirror." Kyle Bass
Congress won't change as they are now be funded by super-PACs. Ironically called the Real Justice from our Supreme Court! Sorry citizens with common sense, as corporatism rules America.
If a store raised the price of bottled water during a crisis they would be charged with a crime. Currently we don't even have a crisis as Americans have reduced gasoline consumption.
This is why citizens complain we are on the wrong track.
I used to be a Republican. Notice that only Obama is directly addressing the issue and make sense. This is why I'll vote for him. Wall St real goal is to increase their bonus and buy a mansion. Its that stupid-simple!
Vegas Casinos have their bets covered and can pay out. They are regulated by the appropriate gaming/casino/gambling commission with tough rules. Investment and shadow banks have none - or much less - of it. Derivative bets are usually leveraged to the hilt and are a multiple of the 'underlying' physical. So when these synthetic, naked bets go bad, those who are on the losing side need to cover margin calls (remember AIG and the CDS they wrote?). And that s where the death spiral can start and get out of control: At some point, those who are on the wrong side try to get out, at any price, and dump valuable stuff at distress prices. So it is quite common that vacuous bets gone sour are the reason for excessive volatility, unexplainable price moves, up and down, of the REAL stuff, be it oil, grain, coffee, gold, stock, interest rates, credit default insurance and so on. So the tail (derivatives like futures, options, swaps etc) can indeed wag the dog (the underlying reals stuff). Just mho, of course.
This is very different from 2008 when prices soared because of global demand outstripping supply (scarcity pricing). Western economies, especially the US will be hard pressed to grow under the current conditions.
Oil markets are worldwide and what happens in China affects the price of oil everywhere.
First lets talk about demand. Demand has been growing because when third world countries develop a middle class, they like the same things that the American middle class does, especially automobiles. Oil consumption in China has been growing incredibly fast.
Next lets talk about supply. Supply has been growing more slowly than demand has been rising because (a) the easy stuff has already been gobbled up, (2) Obama has stopped issuing drilling permits on public lands and off-shore, and (3) the middle eastern oil region remains in turmoil.
It has nothing to do with futures traders driving the price up. Bill O' Reilly missed the boat on that one. Saying that futures traders affect the price of oil is like saying your mirror affects whether you are pretty or not.
And if we want to reduce the cost of gasoline, we need to either drive less or, my preferred solution "Drill, baby, drill." Obama, get the hell out of our way.
So, when I started my investments, the first stock I bought was (XOM).
Energy ain’t never goin’ outa style anytime soon so ya might as well get paid for the ride. Ya know?
Ain’t capitalism grand?
http://viableopposition.blogspot.com/2011/12/future-of-oil-2010-to-2035.html
To compensate for production declines over the next 25 years, 47 million BOPD of gross production additions are needed; to put this into context, this is twice the volume of oil currently produced by all Middle East OPEC nations! This will require an investment of $10 trillion over the next 25 years.
What good is sanity in a world that has lost its mind?
What is driving me nuts is Obama doesn't do anything practical about this. We should be promoting natural gas for vehicles. There are 285 trillion cubic feet of natural gas under us. This needs no refining to run cars, trucks, buses, power plants, heat houses, etc.
Where I live, we heat houses, water, run buses and the largest fossil power plant (moss landing).
Honda makes a natural gas car today, and it's far superior to a Prius, Leaf, or Tesla (potential brick).
With our vehicles running on natural gas, $500 billion of the money we sent overseas to buy oil would stay here instead.
Natural gas from USA=drive gasoline prices down, operate our vehicles, make economic stimulus here. All things about natural gas are positive.
You can't spill natural gas and a pelican won't choke on it.
Why isn't this what Obama focuses on, instead of all the wasteful and harmful stuff like funding corruption and dumb ideas like Solyndra? Seems simple to me.
I'd sliding scale royalty -favor nat gas, penalizing oil, including offshore, with some locations simply off limits, over oil. Coal's a non-starter absent a tech revolution.
I'd encourage frac'ing where environmentally sensible but make it illegal where it's not (the Eagle Ford Shale, for instance, looks good to go, while fracing along the banks of Cayuga Lake looks stupid.)
None of the above is close to happening, as government by lobby bears no relation to
concern for international economics, environmental prioritizing or overall efficient
marshalling of incentives in the free market by way of industry - government - academia
partnership.
Today's the tomorrow we worried about yesterday, apart from the upwards of a million
needless injuries annually, infinite consequential expenses, national balance of payments disadvantages, etc. that otherwise all along have occurred because of interlocked oligarchs having ripped out award winning mass transit systems here there and everywhere across the U.S. during the early / mid 20th Century.
That's kinda parallel to the health cartel saying let the uninsureds' expenses get shifted into your premiums, let preventionism count for nothing, but just let us only be responsible for risk-free customers, or to the TBTF banks saying lets reform mortgages when the mortgagors know they'll never recoup their equity placed down, they know they deserve
non-recourse regimes instead of de facto debt prison, and with the taxpayer de facto paying for the banks' haircuts, loss-sharing, losses based on fraud, whatever, you name it, another day another way for them too to enjoy privatized profits genie-like created from an historic mortgage Ponzi fiasco, leaving you with the only thusly open-ended cost that they created.
However, following on the energy policy dream, I see the above as a double-edged sword.
Rebuilding mass transit means not just jobs and a dividend paying investment for government, but a means of making a far more efficient system for the 21st Century than the systems ripped out could offer. Today there're many flex-tech, computer-aided systems possibilities.
Seeing Goldman / O'Neill in the heading fits.
Oil and banking were always bedfellows.
Lend to hordes of would be competitors in oil or refining.
Then, flood the market with product. Call the loans.
Voila. All those industry mates who thought you were
their friend are thusly sharecroppers.