Print
Email
Share
Facebook
Twitter
LinkedInSome very rough ballpark math:
If the the major oil exporters export around 40 million barrels of oil a day, then every $10 per barrel gap between what the oil exporters spend on imports and what they get on their oil is worth around $150b over the course of the year.
A tiny bit less actually. Call it $145b.
If the oil price stays at $95 a barrel or so over the next year, the oil exporters could spend about $50 a barrel, and still have about $45 a barrel left over to invest in a broad range of assets globally.
If oil exporters are getting $95 a barrel, spending $50 a barrel and saving $45 a barrel, they will have about $650b to invest globally.
That is more than China has to play with. And the fact that China's current account surplus could rise from its 2006 level even with $95 a barrel oil is in some deep sense stunning. The oil exporting economies also have far fewer people than China. Even counting Nigeria.
If the oil exporters attract additional (net) private capital inflows, official asset accumulation in the major oil exporting economies could be even bigger.
And remember, this all assumes that the oil exporters will ramp up spending on imports so that they need $50 a barrel oil to cover their import bill. Not so long ago, any oil exporter that needed $20 a barrel oil to cover its import bill was taking a big risk …
This analysis draws on my oil and global adjustment paper from this March. Back then I assumed that the oil price would stabilize at say $60 or $70 a barrel, allowing the (rapidly increasingly) imports of the oil exporting economies to cut into the oil exporters' current account surplus.
Suffice to say that oil export revenues are once again rising faster than oil spending and investment.
And that, in turn, makes the question of what the oil exporters are doing will all their petrorevenues all the more pressing.
My guess is that they aren't all being held as petrodollars ….
Update: This New York Times article highlights an important point. It takes less oil to produce a dollar of US GDP now than in the 1970s, but a lot more of that oil is imported now than in the past. The result: more of the windfall from higher oil prices is transferred abroad. The Gulf is now going through its "Texas in the 1970s" period.
Update: Nice graphs from Sudden debt (Hellasious) showing the relative contribution of various regions to overall growth in oil demand. Chinese demand is clearly growing rapidly, but the overall increase in global oil demand isn't coming from China either. The US contribution was significant from 1990-2005, but since 2005 the US has been relatively virtuous …
“And the fact that China’s current account surplus could rise from its 2006 level even with $95 a barrel oil is in some deep sense stunning.”
The price of oil may take its toll on Chinese exports to the US. I was talking to a 3rd generation furnature store owner, today, and he told me that the cost of shipping a container from China has gone for $2,500 in 2003 to $5,800 in 2007. With oil priced where it is now, he feels that the time is coming in which North Carolina furnature manufacturers will be competitive with the Chinese manufacturers.
I guess the question is, will US consumers have enough money/credit to be able to buy furnature from China in the future?
Recent spate of GCC money fueling the acquisitions of companies and spending on infrastructures and developments…the list goes on and on…
-Och-Ziff Capital Management sell a 9.9 per cent to Dubai International Capital for about $1.25bn when the US hedge fund completes its planned flotation.
-Abu Dhabi’s Taqa offers C$5bn for PrimeWest
-Dubai Drydocks offers $1.5bn for Singapore’s Labroy
-Sagia cites a $624bn investment programme to upgrade infrastructure till 2020
2006 $65bn granted to foreign companies.
-Dubai to buy Almatis
-DP World buys Eyptian for $670million
-Dubai buys ICICI stake for $740million
-Dubai buys stake in Deutsche, HSBC,
I hope the crack spread takes off again and gas heads to 5 dollars. Im tired of sending heaping amounts of money to an area of the world that has nothing in common with western values or respect of life
black swan: is that “a container from China” or “a container of furniture from China?”
Brad,
How big will Russia’s reserves be by the end of the year? 500 billion?
“is that “a container from China” or “a container of furniture from China?”
That was a container of furnature from China.
“…”Sustainable energy is the equivalent of the U.S. moon shot… If you look at… what the United States invested in the Apollo program, money of that magnitude, I am confident, would reveal a lot of breakthroughs in energy technologies, efficiency technologies and new forms of energy.”…” http://www.nytimes.com/2007/10/23/business/worldbusiness/23energy.html?ref=business
State-owned China National Chemical Corp to buy Australia farm-chemical maker Nufarm Ltd for $2.7 billion
http://www.bloomberg.com/apps/news?pid=20601080&sid=agcKKy.m6cSA&refer=asia
State-owned Chinese company ChemChina is offering an 11 percent premium for the world’s second- largest supplier of off-patent agricultural chemicals as farmers plant bigger crops to take advantage of rising prices for wheat, soybeans and other foods.
Many cynics have posited that America’s objective in Iraq was securing oil. This type of cynical conspiracy theory makes little sense since the biggest friends of the Administration already have oil. The more obvious and plausible conspiracy theory is that their objective has been the opposite: do their utmost to maximize global instability in order disrupt global supply thereby squeezing up the price up as much as possible for parochial benefit. Measured by this standard, the Administration is doing a cracker-of-a-job!
‘Financial Distress without Bankruptcy: The Case of China’ http://www.aimhi.com/VC/tcfa/conference/TCFA_best_paper_2007.pdf
Russia’s reserves are about $440b right now. the pace of accumulation has slowed a bit, b/c of a fall off in capital inflows, but $460-480b would be a reasonable estimate for year end. On a per capita basis, that is very high.
“United Bank for Africa (UBA) Plc, Nigeria’s largest bank has bagged the Emerging Global Bank Award, beating strong contenders, JP Morgan Chase and Standard Bank in the process…” http://allafrica.com/stories/200710310552.html
“…”It provides us (with) an almost infinite amount of capital to execute projects.”…Mr Elumelu [UBA] said he hoped… to finance a power project that would help to tackle Nigeria’s chronic electricity shortages…” http://allafrica.com/stories/200710310926.html
“…the Russian government is dumping billions into the burgeoning science of nanotechnology… $5 billion in initial funding… puts the country on a par with the United States in government-funded nano research… It also represents a quiet admission that Siberian oil and gas, Russia’s financial wellspring, won’t last forever…” http://www.wired.com/science/discoveries/news/2007/11/russian_nano
errr…what do all these links have to do with the point of the post?
And on Russia – while reserves have slowed, transfers to the stabilization fund have accelerated, along with the oil price. It was worth almost $150 billion at the end of October
http://en.rian.ru/russia/20071101/86286001.html
so even with Russia’s spending increases(the fiscal surplus for 2007 is likely to fall to 2.8% this year when Q4 spending is added), that’s still a lot of assets – especially when they shift some away from the highly conservative stabilization fund allocation
Energy prices are also having an effect on food prices. Food production is energy intensive, and also high oil prices encourages ethanol production which puts pressure on feed prices.
Brad I guess it takes some dollars to make the oil barrel in the first place no ?
You could assume a 10 dollar production cost and leave the math as is for the rest. No ?
“The Gulf is now going through its “Texas in the 1970s” period. ”
Well, not exactly. Generally speaking, Opec production peaked around 1980. Constant dollar oil prices were somewhat higher back then. However, net exports were significantly greater because internal consumption was so much lower. Of course, the populations of these countries were much lower at that time. On a per-capita basis, Opec had far higher revenues in the last boom versus the current one.
A few numbers may help. Saudi production peaked at 9.9 MBD back in 1980 Kuwait peaked at 3.283 MBD in 1972, 2.5 MBD in 1979, and 2.536 MBD in 2006. Iran peaked at 6.022 MBD in 1974 and was still at 5.242 MBD in 1978 (4.028 MBD in 2006). Iraq peaked at 3.477 MBD in 1979 and has never reached 3 MBD since. Indonesia peaked at 1.686 MBD back in 1977 (and now imports oil). Libya peaked at 3.318 in 1970 (actually this is where the data series starts) and again at 2.092 MBD in 1979. Nigeria peaked at 2.302 MBD in 1979 and more recently at 2.627 MBD in 2005. By contrast, the last annual data point for the UAE is the highest at 2.636 MBD in 2006.
For the Opec 12 (Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela) production peaked at 30.728 MBD in 1978 and again at 32.406 MBD in 2004.
For the Persian Gulf production peaks at 21.725 MBD in 1976 and 21.066 MBD in 1978 and 21.501 MBD in 2004.
By contrast, oil consumption has risen from 2.044 MBD in 1980 to 5.853 MBD in 2005. The list of countries isn’t quite the same. But the pattern should be clear. Considerably less oil is available for export because of rising internal use.
As for population, since 1980 Saudi Arabia’s population has grown from 9.32 million to 24.289 million. Iran 38.35 million to 70.962 million. Kuwait 1.37 milllion to 3.204 million.
I once calculated that as a consequence of falling oil production, declining constant dollar oil prices, rising internal consumption, and soaring population, Iraq’s per-capita oil revenues had fallen by 90% since Saddam took over. This was before the current war.
Got to factor in how much it cost to pull it out of the ground….10-15
peter — interesting calculations.
df — the imports needed to produce the oil export revenue stream are included in my calculations. think of its as three components:
the imports needed to produce oil
the imports bought with oil export revenue
and then what’s left, which amounts to the financial assets bought with oil revenue
Twofish on 2007-11-02 10:14:36 – and water intensive
“…buying water is quite unlike buying anything else. At the moment, water doesn’t really function like a private good; its value, which Peter Binney calls “infinite,” is often only vaguely related to its price…” http://www.nytimes.com/2007/10/21/magazine/21water-t.html?pagewanted=2&ei=5087&em&en=adc25155e153a757&ex=1193284800
“And that, in turn, makes the question of what the oil exporters are doing will all their petrorevenues all the more pressing.” And will they be able to invest those petrodollars in assets of intrinsic value before all that paper money becomes worthless?
Right now it looks like a global game of musical chairs (or bags). Who will get stuck holding the bag?
In the case of oil, there is a realization that it is a finite resource, and people in the Middle East are anxious to get the money invested so that they’ll have something in reserve when the oil there runs out, which should happen in about 20 to 30 years. The Middle East is not Texas-1970, it’s Texas-1940.
The end of Middle Eastern oil will not be the end of civilization since there are lots of other sources of energy (Alberta tar sands, coal, Venezuelan bitumen, ethanol, bio-diesel, shale oil). But those sources aren’t in the Middle East.
One thing that is one should note is that the spike in oil hasn’t resulted in shortages or long gas lines like in 1970′s in the United States. This is because the lines in the 1970′s were due to price controls rather than the physical lack of oil. It’s also important to note while we are talking about BWII, that the OPEC and the oil shocks was part of what eventually killed BWI.
It’s also important to note while we are talking about BWII, that the OPEC and the oil shocks was part of what eventually killed BWI. Ummm, no. The Nixon shock and Smithsonian agreement were driven by the Vietnam War.
While oil prices did tick up during that period, the OPEC embargo of 1973 was, if anything, a result of the dollar’s post- BW I devaluation, and the concomitant drop in the global purchasing power of petro-dollars.
@Twofish
Hmmm, I suspect that you won’t find too many Oil industry observers (outside OPEC itself and the EIA) who believe that Saudi can pump much more than it is now or keep pumping at this rate for another 30 years (some of those super giant fields were discovered in the 1940′s and 50′s), so I suspect that the comparison with Texas in 1970 is very apt. The tar sands is a non sequitur, the energy needed to extract oil from that stuff is so high that the net benefit per barrel is a tiny fraction of that obtained from a barrel of liquid out of the ground. It won’t help.
Oil is history (also Big Oil).
Cheers
N.Dog
@Macro Man
if I am not mistaken, the OPEC oil embargo of ’73 was a political response in retaliation for the US/European support for the unprovoked (as always) Israeli attack on syria and Egypt.
N.Dog
twofish – “Food production is energy intensive, ”
look, twofish, industrial and economic growth is energy intensive – choke that to death, and who will generate a demand for oil, afterwards ?
.
( ask me again when oil is at $40.)
“…A number of developments… have been blamed for the collapse of the Bretton Woods system. The fundamental point of agreement is that the U.S. ran an increasing current account deficit and… it could not establish credibility on reining this deficit in. This would lead to the study in economics of credibility as a separate field…” http://en.wikipedia.org/wiki/Bretton_Woods_system
Nice comment gillies,
It’s funny to see that 2fish suddenly discovered “peak things”,
It seems that he fall out of baptism font, suddenly, to the floor, without any parachute in his way down!
Something must be really going bad in WS or China for that sudden change in his cynicism…
Long queues in China petrol stations?
Don’t have the chinese smart people special petrol stations for CEOs or special chauffeurs for the queues?
Let’s see their comments next week!
N-Dog, yes you are absolutely right that the Yom Kippur War in ’73 provoked the immediate trigger for the embargo. However, one wonders if the response would have been identical had the international value of the oil revenues had not been falling, which was the point I was trying to suggest.
I would maintain, however, that the inflation and current account deficits stemming from the Vietnam War were what caused the US withdrawal from the system
Jim Rogers Says Bernanke Is `A Nut’ for Cutting Rates
http://www.bloomberg.com/apps/news?pid=20601084&sid=aThdP7ytP3Jw&refer=stocks
Nov. 2 (Bloomberg) — Federal Reserve Chairman Ben Bernanke is “a nut” and interest-rate cuts by the central bank are harming the U.S. economy by fueling inflation, investor Jim Rogers said.
“Bernanke loves printing money,” Rogers said in an interview in New York. “This man is a nut. The dollar is collapsing, commodities are going through the roof, which means inflation’s going through the roof. These people are leading us to terrible problems down the line.”
Rogers, the 65-year-old chairman of Beeland Interests Inc., also said he’s selling short shares of Citigroup Inc., the biggest U.S. bank, and Fannie Mae, the largest provider of money for U.S. home loans. Investors should buy commodities and the Chinese currency, Rogers said.
Rogers said financial companies may be forced to write off “tens of billions of dollars more.” Rogers, who predicted the start of the global commodities rally in 1999, is betting that prices for oil and agricultural commodities will continue to rise.
“Oil prices are going to go higher because nobody has discovered any gigantic oil fields for over 40 years,” said Rogers, who sees prices climbing as high as $150 a barrel. “There’s just no oil out there.”
N.dog
You are indeed mistaken. The Israeli’s have much to answer for post 1980, particulary in regards bad behaviour in So. Leb & occup terr., but fot the sake of truth, “an unprovoked attack upon Egypt & Syriain 1973″ was not one of them. There is reasonable contention (now) that the 1967 pre-emptive attack was necessary given Soviet archive release, per historical spin. But thats another story, and far OT.
Chinese to develop Africa’s Congo Copper Reserves for $5 bln
http://www.bloomberg.com/apps/news?pid=20601116&sid=a_Ep4AS.WII4&refer=africa
Four Chinese state enterprises will own 68 percent stake of a joint venture with Gecamines, the state-owned mining company with the rights to Congo’s copper reserves, Managing Director Paul Fortin said in an interview yesterday in Kinshasa. China will lend Congo $5 billion to pursue mining and infrastructure projects, Infrastructure Minister Pierre Lumbi said Sept. 18.
“The Chinese want to go into production,” Fortin said. “They’ll go very fast. They’re here to get the metal.”
China invested $11.7 billion in Africa by the end of 2006, most of it destined for oil producers Nigeria, Angola and Sudan. Chinese President Hu Jintao last year predicted annual trade with Africa will double to $100 billion by 2010.
China, which wants to extract copper, cobalt, gold, lead and tin from Congo, will also receive rights to metal deposits in Congo, Fortin said. Chinese companies have calculated the volume and value of Gecamines’ copper and cobalt assets, he added, without providing further details.
The bulk of China’s loan to Congo will be used to repair roads, railways and electricity supply, Fortin said. Most of the funds will be “disbursed upfront”.
China Overseas Engineering Corp. announced in March it will invest $300 million in two copper and cobalt-mining projects in the Congo. The company plans to produce 20,000 metric tons of copper and 1,500 tons of cobalt, used in the manufacture of jet engines and ceramics.
“It seems time to establish The Economics of Money Laundering… What is the scale of money laundering? Why do global empirical estimates range from several trillion US$ to a mere several million? What is the role of fraud for money laundering?… What can economics contribute to money laundering?…”
http://www2.econ.uu.nl/users/unger/conference.html
DC – Due to an impending event of creative destruction, Jim Rogers’ Citigroup short has 48 hours to expiry.
“…The elevation of Vikram Pandit to a senior position in Citi will now see Indians in almost all the main international business of the largest US bank. There are around 13 Indians in the management committee of Citi…”
http://economictimes.indiatimes.com/Corporate_Announcement/India_shining_at_Citi_Vikram_Pandit_elevated_to_senior_position/articleshow/2454052.cms
“…Described by colleagues as a “self-effacing derivatives wizard”, Pandit is perhaps an unlikely candidate to emerge as a successor to Prince at the world’s biggest bank, as analysts have predicted…” http://www.financialnews-us.com/?page=ushome&contentid=2349013464
peak women “…The UN notes that if Asia’s overall sex ratio were the same as the rest of the globe, in 2005 the region would have had 163 million more females… One consequence of Chinese becoming richer may be more sex selection, not less… reports of female infanticide are becoming routine. The same is true of India; the wealthier the region, the wider the gender divide is likely to be… the lack of safety nets – public help with education, health care and pensions – means that sons are the safety net…” http://www.bloomberg.com/apps/news?pid=20601039&sid=a9R.dwXkar1U&refer=home
@ Guest on 2007-11-03 08:28:35
Female infanticide referred as “peak women”, is a pure machist (an spanish word derived from macho = male, with two eggs!, in this case) label with a very distorted sense of reality.
The word “Peak”, talking in economic terms or in mathematical terms, refers to an inflection point of production, not to assassination or abortion.
Japan discovered a way to centrifuge sperm to choose the sex of your child. So, no abortion (I support abortion, anyway, like most of people in EU).
But don’t mix killing your daughter with “peak women”. It’s just the opposite.
If Saudies were to down their production %50 you’d realize the difference in your pocket.
It ain’t just oil, folks. It’s the effect of high oil prices on oil prices. How’s this for chicken and egg?
“Dr. Muhammad al-Qahtani, a professor of economics in the Institute for Diplomatic Studies in Saudi Arabia, also said the cost of oil for cargo ships has risen so much that sometimes the cost of shipment is higher than the cost of the product.”
although new to muslim (?) diplomatic school (?) economics (previous comment) – i get the general principle. . . .
so bernanke’s helicopter keeps flying until the load of dollar bills is worth less than the cost of filling up the fuel tank on the chopper ?
then what ?
.
Twofish,
“The Middle East is not Texas-1970, it’s Texas-1940″
In 1940, Texas was decades ahead of its production peak. In 1940, Texas produced 487 million barrels of oil. The peak was in 1972 at 1,263 million barrels. 2006 production was in 341 million barrels. Is the Middle East going to double+ production over the next 30 years? Probably not.