Tuesday, December 9, 2008

Obama, Oil, and the First Wave

The Obama administration is almost upon us. I have told friends and relatives for years that I do not envy the person stepping into the oval office in early 2009. Last week president-elect Obama acknowledged what we all know…the economy is bad and it will get worse. While it is nice to see the typical sunshine pumping about the economy that has been pouring out of D.C. for way too long come to an end…it is very apparent that our “leaders” are still a number of steps behind. In fact they are just as behind as they were 4 years ago when oil had never breached $40 a barrel and a number of concerned folks were trying to raise awareness about the danger we would soon find ourselves in with oil topping $100 and the unknown economic catastrophe triggers it could switch. Well, all of that happened.

I admit, while I did clearly see the energy side of the equation, the nature of this first phase of economic hardship was only learned by me as it was happening. So where are we now? This is just the first wave. Things are now happening much too quickly for our big lumbering governmental and political systems to have a prayer of keeping up. We must obviously fend for ourselves. Oil is hovering at $40 a barrel as I type this. Demand is about 86 million barrels per day (mbpd) while supply is about 87 mbpd. Numerous energy projects have been cancelled due to the recent price collapse. A lot of work that was economically viable at $80 a barrel is not even worth considering today.

Thankfully oil demand has been slowed by the economic downturn. When things start looking rosier, keep an eye on those oil prices. Demand can turn up in the blink of an eye. What happens when demand exceeds supply? The price keeps going up until something (something very big and important) breaks. Then the price comes down when demand has sufficiently been destroyed. Does that sound familiar? It should. You have just lived through a very mild cycle of it. It will get more exciting from here on out. It can be frightening or exhilarating…but that depends on how you have prepared. Of course most people won’t connect the dots and will do the easy thing….blame the government or the president or whoever else. Like I said, this is a bad time to be the president. Good day and God bless.

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