Supply and demand in a global economy.
The economic numbers for the first quarter of 2008 showed that while the U.S. is not yet in a recession, we're sure darn close. The quarter's scant 0.6 percent growth rate suggests that ridiculously high commodity prices (oil, corn, pork bellies) should fall back to earth as Americans cut their spending, reducing demand. But as recent earnings reports show prices have skyrocketed. Since last August, the price of a barrel of crude has gone from $70 to over $110, despite six months of stagnant economic growth. The same is true for other commodities like copper, where trading volume has remained stable, suggesting that the price hike is not entirely due to speculative investors.
While economists make fine arguments in support of the belief that the rise in commodity prices is a symptom of bad monetary policy, it's also hard to dismiss the fact that high prices could simply be a matter of supply and demand - or at least expected supply and demand. One Wall Street Journal writer suggests that there are many similarities between today's economic conditions and those in the '70s, including low interest rates, a weak and falling dollar, market interventions, and high oil prices. But, he says:
there is an important difference between our troubles today and those of the 1970s. In that decade, aggregate supply sagged as oil producers scaled back production and anchovies disappeared off the coast of Peru. The 2000s have been about demand expansion. Millions of workers in China, India and Vietnam, among others, have joined the world trading system.
So, while there may be other factors influencing the rise in the price of oil, metals, and food. A fundamental reason for this price increase is a matter of basic economics: supply and demand. Indeed, despite oil prices that would encourage massive production, oil giant Chevron said it pumped less oil in the first quarter of this year than in the first quarter of 2007. And when ExxonMobil announced its production expectations, investors were shocked to hear that the company said it would pump no more oil over the next few years than it does today despite increasing its exploration and production budget by 25% to between $25 billion and $30 billion a year over the next five years. Business Week explains how astounding the announcement is:
Ponder that for a minute. Texas-based Exxon is the largest publicly traded company in the energy business. In fact, it's the most profitable company in the history of capitalism, earning a record $40.6 billion on sales of $404 billion last year. Yet even with prices at the pump near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year.
It would be as if Steve Jobs said that though people were willing to spend nearly four times more for a Mac than they had been eight years ago, Apple would not build any more. Why is one of the best run oil companies, and most profitable company ever, declining to increase in production? Business Week explains, "Since 2000, Exxon's oil output from two of its largest regions, the U.S. and Europe, declined a startling 37%. That's 500,000 fewer barrels a day in just seven years." In other words, its getting harder and harder to find oil. The most money being made in oil exploration is by those who can drill miles beneath the ocean floor.
While it may not be accurate to say that the world is running out of oil (a cartel dedicated to keeping prices high has too much to say about the world's oil supply to suggest the world is running out), it is accurate to say that for the moment supply is having trouble keeping pace with demand.
While supply remains stagnant, demand has spiked. "World consumption is projected to rise 35 percent, to around 115 million barrels a day, in the next two decades," according to The New York Times. Most of the growth will come from China, India and oil-producing countries in the Middle East."
As developing countries prosper, their citizens seek to emulate developed countries. They eat wheat instead of rice; meat instead of beans. They commute in cars from their homes miles away from the office. They buy cell phones and other electronics, increasing demand for copper and microchips. Some commentators suggest that those of us in the developed world must either quickly abandon our energy guzzling, wasteful ways or get used to a lower standard of living. Most likely, we'll have to do a little of both.
But how should American Christians react to a world in which those resources we've become used to having mostly for ourselves are suddenly in demand across the globe? Can we learn to share our global resources? Must we see a lower standard of living in our future?
Many Christian traditions have taught the lessons of simple living. Living simply, and thereby consuming less, does not necessarily correspond to a decrease in living standards. Those skills in simple living, it seems, are more needed these days as billions more people are now competing for a shrinking supply of resources. While some researchers foresee nationalistic competition in a scramble for limited resources, possibly resulting in war, Christians can be leaders not only in wisely exploiting creation but also in justly sharing it.
Of course, actually accomplishing that task takes more than words. But in a world where energy and other resource dependencies have allowed terrorists to breed and genocides to freely proceed, where people go hungry because they can't afford food, the ability to do more with less is another resource in which demand outweighs supply.
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Posted by Rob Moll on May 4, 2008 8:12PM
Comments
This commentary on global resource-economics and specifically petroleum is dead on. The world has changed dramatically over the last few years and that change will continue, for better or worse. Perhaps our American days of great material abundance and wasteful consumption, due to low prices are coming to an end. As the article suggests, God's people ought to look at the future with anticipation of great opportunities to change ourselves.We may be moved to less selfish lifestyles, emphasizing instead relationships and joyful service.
The Gospel in the hearts and generous lives of the new "poorer" Church might actually come in revival power. Is this new economic crisis a blessed judgement?
Posted by: Jeff Greenberg at May 6, 2008
We have NO shortage of oil in the United States. Environmentalists have succeeded in stopping drilling in the places where the US does have oil, eg. Anwar, off the coasts of Florida and California, and the Gulf. The US is unable to use vast coal supplies because of environmental restrictions. The US CAN be energy sufficient if we get the environmentalists and government restrictions out of the way. Christians can live simply by being simply smart, and we don't have to lower our standard of living at all.
Posted by: Linda at May 6, 2008
Here's a crazy thought - get the government out of the market (which is really just people trading freely) and let prices convey their information so providers and consumers can react accordingly. That "astounding" profit for Exxon - was that before or after the massive taxes oil companies must pay?
Posted by: Harold Orndorff at May 6, 2008
After the world and it's resources are used up we will learn a big lesson: We cannot eat or drink or breathe money!!!!!!!!!
Posted by: Jack Richards Jr at May 6, 2008
Oil has been humanity's priviledge and it's fair to say we've abused that priviledge about as far as we can. The environmentalists are the worlds voice and I for one would far rather have them speak to us than another violent storm or quake or other "act of God". When Jesus taught " a man is as he thinks" He may have been looking at 21st Century life and the danger that humanity has become to our planet. Simply we have got to change the way we think. Being a good Christian is not subscribing to consumer driven living. Jesus was a simple man in the best and holiest sense and he put his brothers welfare far ahead of his own luxury. Now I'm not espousing an ascetic approach to modern life but we all need to look at ourselves in the context Jesus taught and demand for our neighbors world-wide a fair and civilised comfort of life and if that means less trips in the car then buy a bicycle. The Western world uses about 85% of the resources of the world yet makes up only 20% of the population. Is that the example Jesus set? The world must be shared equally for any form of justice and hence trust and peace and big business is scared as hell that it's being called for because they will lose profit and control. I'll walk to that
Posted by: mike howell at May 7, 2008
Learning to share is a very positive value. Unfortunately most North Americans are really not aware that they use six times the resources of the average human being on this planet. Surely we must learn to accept less and share much more equitably the resources on our God-given planet.
Posted by: rob clement at May 7, 2008
The Christian values of living simply and sharing are, from a sustainability and economic perspective, incredibly important for the international community to take seriously - and even attempt to implement in terms of policy - at this time.
Not only are these values universally applicable to Christians and non-Christians alike, they present a simple framework for dealing with some of the key issues of our time, such as poverty, inequality, climate change, overconsumption and conflict over scare resources. A great source of information on these issues is a website called 'Share The World's Resources' (www.stwr.net), which I visit regularly for news and analysis - do check it out if these issues interest you.
Posted by: R. Ajamak at May 7, 2008
Conservationist may be happy to see high prices so “we” will stop our wasteful ways. I don’t personally care if the rich can’t afford a new Roll’s, but I am concerned about the millions of people that are living on the edge of starvation already and others that are just getting by. Higher prices mean not enough money to feed a family or gas to get to work.
The bible says in the last days as nations push God away He will give them a depraved mind. Defined as an inability to make a sensible decision. Our government can’t seem to make a sensible decision even when it is in their best interest.
Since most governments mess the easiest of things up and waste money by the billions up on billions, get them out of the business of fixing things. Let the market fix itself.
Give electric cars, electric hybrids, hydrogen power, HHO supplemental power, solar power and anything else that has promise equal opportunity to develop and possibly succeed. There are many alternatives to oil; all they need is more research. Work on Ultra Capacitors to new battery technology make electric cars an attractive option. 80% of all driving can be done right now with existing battery technology, never buy another drop of gas.
Oil companies have a couple trillion dollars worth of high priced gas to sell, Governments are concerned about the economy, and they sure don’t want electric cars or hydrogen power to mess it up, so expect a fight from big oil and no real help from government. Think about it!
Posted by: Ray at May 7, 2008
Your article states that at least two large oil companies know the demand has risen, but refuse to produce more when they could. This states to me a selfishness on the part of the powers that be in these companies. While we need to do our part individually, corporations like this also need to do their part. I am quite sure that the CEOs of their companies continue their rich lifestyles while the average American struggles to pay the bills and put gas in their vehicles to be able to go to work.
Posted by: Sandi Caton at May 7, 2008
We are unable to separate our Christianity from our American culture. "Surely it is our right as believers to consume as much as we are able of this world's resources." Providence implies right, in our minds. How blind we are to our own greed!
Posted by: Stephen Chace at May 7, 2008
exxon 's profit was just that - what they had left after paying everything including taxes. The person who said we have no shortage of oil if we could just drill for it everywhere...cite a stat to prove it, not just hearsay. By the way, would you be willing to have a a derrick in your back yard...assuming you would not profit by any oil found?
Posted by: steve at May 7, 2008
Wow--so no more vacations or going home to visit mom? I guess we'd better not move away from our families then.
Posted by: Margaret at May 7, 2008
I can see just from width of responses to this article that Christian America is unsure what is right. Are we to rule creation and take the resources we have a right to, knowing the earth is temporary and that our polution does not count in the end (if indeed polution counts at all), or is our responsibility to care for and steward creation not knowing how long the temporary world will be needed by our children and children's children and knowing that our stewardship (or lack) is something we will be held accountable for before God.
I suppose for me, my questions to myself would have to be: 'Am I being generous or selfish in taking what I take and giving what I give?', 'Would I be proud or ashamed to live next to the poorest with what I have?' 'Would Jesus be satisfied with the life I live, keeping all God's commands, but...?' If my answer is 'no' then I need to put down my rocks and live out the Word I say I believe in. If my answer is yes, then I have not seriously answered the question, lived with the poorest or kept God's commands.
I'm off to re-read the word c u l8r
Posted by: Rob Watson at May 7, 2008
The oil situation in America, actually the world, is the result of GREED. The ultra-wealthy, those who really own (major stock-holders) and control the oil market (exploration, production, distribution and price) are manipulating all the factors to rape the consumers with egregious profits. Unfortunately, gullible citizens (many Christians) accept the babblings of so-called “experts,” with various explanations of why Americans should accept and even want to have their livelihoods extorted by the greedy few. What is even more disheartening is that most Americans believe that their elected officials and government bureaucracies/agencies are the solution to the problem when many of them are being financed and thus controlled by those who are “really” governing and directing the future of this nation. There are no “poor” (financially) politicians in government; the longer they remain in office the wealthier they become—money buys influence and power. And what is most outrageous is the autocratic nonsense of a One World-One Government-One Economy-ism that is being pounded into American Christians as being the will of God. What it is … is the will of Satan, one more slip down the slippery slope to world domination and Armageddon.
Posted by: David at May 7, 2008
President Bush in an Arbor Day speech two or three years ago in Florida told the crowd that at least while he was President there wuld be no drilling off the coast of Florida.
In some National Geographic articles on oil you will find that the biggest oil deposits close to the US are in the Gulf and the technology is proven that can get it. That for drilling in ANWR is unproven technology if you're talking about the drilling off the coast at a slant into ANWR sort of like the illegal slant mining they did in the Old West. We know what we did to the Indians in the Old West and it seems we want to do the same thing to the Native Americans who have lived for thousands of years off the caribou herds calving in ANWR. It's not the same herd that grazes around the pipeline. Never mind that those particular Native Americans are Christian.
Posted by: Anglican at May 7, 2008
Studies by the US Geolgic Survey show that even if drilling operations were to start in ANWR right now the oil there would not get to us for at least 7 years.
Posted by: Anglican at May 7, 2008
Churches say drilling in ANWR morally wrong
Episcopal News Service
Issue:
Section:
2001-274
Posted: Thursday, September 27, 2001
The Episcopal Church has joined with other faith groups in a statement condemning as morally wrong an amendment to a defense authorization bill that would permit oil companies to drill in the Arctic National Wildlife Refuge (ANWR).
Proponents of drilling in ANWR say that the oil is needed for 'reasons of national security' in the aftermath of the September 11 attacks on the Pentagon and the World Trade Center and subsequent preparations for a global 'war on terrorism.' But opponents say conservation measures will do more to assure steady oil supplies.
'Drilling for oil or gas in ANWR will not benefit the troops we now pray for. In fact, it is unlikely to see oil or gas production for 10 years,' the statement said. 'Americans can and should conserve today to reduce our dependence on foreign sources of oil and important natural resources during this national emergency.'
Drilling supporters also claim that most Native Alaskans support their position.
'The Native Alaskans who support drilling are predominantly Inupiat, or Eskimo, whose culture and primary subsistence source are more related to marine wildlife--whale, seals, and fish--not caribou,' said the Rt. Rev. Mark MacDonald, Bishop of Alaska. 'A disruption to the caribou herd from drilling would not be as devastating to their subsistence way of life. The Inupiat are very strong in their oft-stated opposition to offshore drilling.'
The Interior Department has estimated that drilling in the refuge could cause a 30-40 percent decline in the populations of the coastal plain's species, including caribou. That would be devastating to the Gwich'in, who depend on the caribou for their traditional way of life. The Gwich'in people are predominantly Episcopalians.
'We are saddened that the divisive issue of drilling in ANWR is being raised at this time of national crisis,' the statement concludes. 'However, if others choose to make this an issue now, we must come forward to oppose any efforts to plunder this national treasure. Instead, we invite our policy makers to join us in seeking to repair, rather than further, the damage we have done to God's earth and God's creatures.'
Posted by: Anglican at May 7, 2008
I think we are need to do something to save the human race.We in developing nations must endeavour to work hard and avoid sinking in debts because of global food crisis,but even the developed nations need to give assistance to those in need.Otherwise food and oil crises cause the biggest threats at this time.
Posted by: Bigirwa at May 8, 2008
An answer to the problem is simple, attractive and desirable, but given the nature of man, not likely. Dare to 'unthink' the misguided philosophy of promoting and propping up the democratic theory world over and start over for a starter in one single world class economy, by establishing a brand new 'Theistic Communist' form of government. Take possession of every energy resource, firmly dispossess every proven greed driven cartel, establish a governing order with God and His principled standards at the heart of all constitutional reform and its application, dedicate tithes of all gross profit to the distribution of life support for the world's needy and watch while contagion builds the evolution of reproduction worldwide!
Posted by: Jacob Friesen at May 12, 2008
Yep, I am with Jacob. After all there has never been an example of a corrupt Theistic government. After all look around at the theistic governments that are currently around and you can see how they always use their power for the benefit of the people.
Posted by: Adam S at May 13, 2008
Are the oil reserves half full or half empty? The answer is half empty because they are not making any more of the stuff. The oil companies are wise in limiting production because when the oil is gone then so is their company. They are simply protecting their product and are not at fault for our greed. How many of us take unneccesary drives on the weekend or selfish business trips just to get out of the office? Wake up folks, the oil is running out and the oil companies control the supply. You have little say in the situation so start conserving now so you can pay high prices for a longer period of time.
Posted by: Tim at May 21, 2008
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