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because the West doesn't drive oil demand anymore:

  •  a "recession" in China means 5% growth instead of 11%, and 5% growth still means increasing oil demand by them;

  • the countries with the biggest oil demand increases are pretty much all oil producers (Saudia Arabia, Iran, Russia), and they subsidize demand, or are otherwise booming thanks to high oil prices - thus demand over there will continue to go up;

  • and back 'at home', demand destruction is not really happening. In the 70s, the power sector and industry cut sharply on demand, but households not so much; even in a sharp recession we should only expect  demand to go down by a few percent points, not enough to stave off price increases

given the elephant in the room: stagnating production and skyrocketing production costs...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Apr 28th, 2008 at 01:14:37 PM EST
[ Parent ]
and back 'at home', demand destruction is not really happening. In the 70s, the power sector and industry cut sharply on demand, but households not so much; even in a sharp recession we should only expect  demand to go down by a few percent points, not enough to stave off price increases

short term I agree, but over the longer term I suspect that demand destruction will occur as people gradually replace lower mileage vehicles with more efficient ones.

by MarekNYC on Mon Apr 28th, 2008 at 01:26:03 PM EST
[ Parent ]
How long did the 70s oil shock last?
by Colman (colman at eurotrib.com) on Mon Apr 28th, 2008 at 01:28:45 PM EST
[ Parent ]
A decade. And it happened in two spikes with the the first being followed by a retreat in oil prices limiting the effect (oh, ok, that was just an aberration, no need to change). The latter part of that period did see significant gains in vehicle fuel efficiency, but the two decade long slump in fuel prices that followed quickly put an end to that, at least in the US. In Europe the policy of keeping gas prices high helped preserve the trend, but that's been partially counterbalanced by the simultaneous completion of the switch over to universal car ownership and the shift to a more American car based social geography (shopping outside city centers and suburbanization)
by MarekNYC on Mon Apr 28th, 2008 at 01:37:48 PM EST
[ Parent ]
If we maintain a "bumpy plateau" for some number of years I think we'll see serious price volatility in both directions. Remember what the Asian financial crisis did to the price of oil - and  the economic "crater" we're descending into will likely be worse.

you are the media you consume.

by MillMan (millguy at gmail) on Mon Apr 28th, 2008 at 01:39:26 PM EST
[ Parent ]
a "recession" in China means 5% growth instead of 11%

I should have added that there is no reason to believe this will continue indefinitely.

you are the media you consume.

by MillMan (millguy at gmail) on Mon Apr 28th, 2008 at 02:41:50 PM EST
[ Parent ]

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