Not quite clear what the author’s point is. If energy prices keep going up (and in the UK gas and electricity should go up by another 50% in October, plus petrol prices never seem to stop increasing) for sure there is going to be a recession.
If they go down… There is going to be a recession.
So I would probably rephrase it saying that there will indeed be a recession, but at least energy prices will go down.
No the point is that rising energy prices have been a contributing factor to rapidly decelerating consumption all across the US, UK and EU, which will likely contribute to a recession (so we’ll get the lower oil prices, but only as a “consolation prize” for more economic dislocation). What’s very striking as one looks at the latest data (everywhere in fact) is how quickly things are slowing down. We could have a real problem on our hands by the autumn.
Thank you for clarifying your article, Mr. Auerback.
My question (should you choose to answer) is what can we do about our current economic situation? Is a crash inevitable and necessary?
More generally, how can we build a sustainable economic future? I see so many clever articles describing the problems, but few articles proposing specific, workable solutions. Where can I find such articles? Perhaps you would consider writing one.
I see. Thank you.
I have to say, I have not seen a decline in traffic… It looks all the same where I am. Personally I am currently hunting for cheap/er smokeless coal to try and use less gas come the winter, not sure what others are doing.
The simplest answer is to stop digging ever deeper into this Climate Change hole we have apparently dug for ourselves, and wake up to the fact that India, China and others are reaping the benefits of Cheap Reliable Energy. When the West is Virtue-Signalling its way to Obscurity it needs to – STOP DIGGING !!
I predict a crash at the beginning of Q4 ’22, when crypo vapourisation and tech stock plunge will allow index and tracker funds to plummet equity markets, and a switch into cash/ bonds will cause bond prices to rise, bond yields to drop, completely out of synch with by then raised interest rates….
Brendan O'Leary
1 year ago
The oil price fall in late 2008 was merely a blip in the 2004-14 oil price boom and could be seen as a mere correction to the sharply-rising price in the months from late 2007. The slump since KSA opened the taps in late 2014, and the collapse during pandemic shutdowns seem far more significant. https://www.macrotrends.net/1369/crude-oil-price-history-chart
I guess there are two somewhat opposing trends:
A drop in demand due to coming recession and a squeeze in supply due to war and sanctions. They may see-saw for a while but eventually low price discourages investment and supplies reduce further until price goes up and investment resumes.
One issue that’s different is the ESG push has restrained investment. That started ~ 3 years ago by Blackrock, etc. That shows up later as exploration slows and risky funds for drilling are not there. But a balance will arrive perhaps after considerable economic damage. (As if the pandemic hadn’t already placed the world on tilt).
Good point. Although UAE has been investing to increase short term production precisely to monetise their reserves before they become stranded assets as a result of energy transition. Saudi Arabia takes a more cautious approach as it also wants a sustainably high oil price to finance its economic diversification, which is less advanced. Refineries in consumer markets rather than production are however a specific choke point for capacity, and this shortfall does seem to have been influenced by the ESG bandwagon.
Eddie S
1 year ago
The article makes sense but the headline doesn’t. Cheaper energy prices per se might well save us. However the article argues any cheaper prices would mean we’d already gone into recession, in which case they would be a symptom of us already not having been saved. Thus the headline is somewhat circular in its logic.
Andrew McDonald
1 year ago
The bit we never seem to get to is any discussion of when we stop using (and wasting) quite so much energy, rather than when its price will go up, and when it will go down. Like, say, food prices in an economy where up to a quarter of all food produced is never consumed. The coming recession may make that a less desirable luxury.
The bit we never seem to get to is any discussion of when we stop using (and wasting) quite so much energy
This seems to be discussed pretty frequently to me. Aren’t those people who keep blocking roads doing it in the name of better insulation?
I suspect the problem of insulation and energy wastage is more difficult than they will admit given there have been grants to get your loft insulated for two decades.
FacRecte NilTime
1 year ago
So it’s cyclical, who knew? Well, for a start, Saudi Arabia and the other major oil producers – much of whose surpluses are invested in western markets and who therefore have an interest in prices that are sustainably strong without provoking a recession that crashes stockmarkets, or energy demand, or drives faster transition away from hydrocarbons.
Current crude oil prices reflect high demand as the covid pandemic (crude dropped to low $20s in early 2020 after several years in the range $40-60) and broader supply chain crisis unwinds. Inflation today is price-led not wage led. This is not the seventies.
Demand will adapt and the price will ease. It will be a market correction, albeit probably with a degree of overshooting. It will not be a full blown recession unless Ukraine or some other external shock supravenes.
FacRecte NilTime
1 year ago
So it’s cyclical, who knew? Well, for a start, Saudi Arabia and the other major oil producers – much of whose surpluses are invested in western markets and who therefore have an interest in prices that are sustainably strong without provoking a recession that crashes stockmarkets, or energy demand, or drives faster transition away from hydrocarbons.
Current crude oil prices reflect high demand as the covid pandemic (crude dropped to low $20s in early 2020 after several years in the range $40-60) and broader supply chain crisis unwinds. Inflation today is price-led not wage led. This is not the seventies.
Demand will adapt and the price will ease. It will be a market correction, albeit probably with a degree of overshooting. It will not be a full blown recession unless Ukraine or some other external shock supravenes.
Not quite clear what the author’s point is. If energy prices keep going up (and in the UK gas and electricity should go up by another 50% in October, plus petrol prices never seem to stop increasing) for sure there is going to be a recession.
If they go down… There is going to be a recession.
So I would probably rephrase it saying that there will indeed be a recession, but at least energy prices will go down.
No the point is that rising energy prices have been a contributing factor to rapidly decelerating consumption all across the US, UK and EU, which will likely contribute to a recession (so we’ll get the lower oil prices, but only as a “consolation prize” for more economic dislocation). What’s very striking as one looks at the latest data (everywhere in fact) is how quickly things are slowing down. We could have a real problem on our hands by the autumn.
Thank you for clarifying your article, Mr. Auerback.
My question (should you choose to answer) is what can we do about our current economic situation? Is a crash inevitable and necessary?
More generally, how can we build a sustainable economic future? I see so many clever articles describing the problems, but few articles proposing specific, workable solutions. Where can I find such articles? Perhaps you would consider writing one.
I see. Thank you.
I have to say, I have not seen a decline in traffic… It looks all the same where I am. Personally I am currently hunting for cheap/er smokeless coal to try and use less gas come the winter, not sure what others are doing.
I’m hard at work cutting down my local rainforest. Plenty of firewood to cook my Orangutang stew.
The simplest answer is to stop digging ever deeper into this Climate Change hole we have apparently dug for ourselves, and wake up to the fact that India, China and others are reaping the benefits of Cheap Reliable Energy. When the West is Virtue-Signalling its way to Obscurity it needs to – STOP DIGGING !!
I predict a crash at the beginning of Q4 ’22, when crypo vapourisation and tech stock plunge will allow index and tracker funds to plummet equity markets, and a switch into cash/ bonds will cause bond prices to rise, bond yields to drop, completely out of synch with by then raised interest rates….
The oil price fall in late 2008 was merely a blip in the 2004-14 oil price boom and could be seen as a mere correction to the sharply-rising price in the months from late 2007. The slump since KSA opened the taps in late 2014, and the collapse during pandemic shutdowns seem far more significant.
https://www.macrotrends.net/1369/crude-oil-price-history-chart
I guess there are two somewhat opposing trends:
A drop in demand due to coming recession and a squeeze in supply due to war and sanctions. They may see-saw for a while but eventually low price discourages investment and supplies reduce further until price goes up and investment resumes.
Exactly. I said something similar in a comment that seems to have been parked out pending approval (despite no obvious trigger words)
One issue that’s different is the ESG push has restrained investment. That started ~ 3 years ago by Blackrock, etc. That shows up later as exploration slows and risky funds for drilling are not there. But a balance will arrive perhaps after considerable economic damage. (As if the pandemic hadn’t already placed the world on tilt).
Good point. Although UAE has been investing to increase short term production precisely to monetise their reserves before they become stranded assets as a result of energy transition. Saudi Arabia takes a more cautious approach as it also wants a sustainably high oil price to finance its economic diversification, which is less advanced. Refineries in consumer markets rather than production are however a specific choke point for capacity, and this shortfall does seem to have been influenced by the ESG bandwagon.
The article makes sense but the headline doesn’t. Cheaper energy prices per se might well save us. However the article argues any cheaper prices would mean we’d already gone into recession, in which case they would be a symptom of us already not having been saved. Thus the headline is somewhat circular in its logic.
The bit we never seem to get to is any discussion of when we stop using (and wasting) quite so much energy, rather than when its price will go up, and when it will go down. Like, say, food prices in an economy where up to a quarter of all food produced is never consumed. The coming recession may make that a less desirable luxury.
This seems to be discussed pretty frequently to me. Aren’t those people who keep blocking roads doing it in the name of better insulation?
I suspect the problem of insulation and energy wastage is more difficult than they will admit given there have been grants to get your loft insulated for two decades.
So it’s cyclical, who knew? Well, for a start, Saudi Arabia and the other major oil producers – much of whose surpluses are invested in western markets and who therefore have an interest in prices that are sustainably strong without provoking a recession that crashes stockmarkets, or energy demand, or drives faster transition away from hydrocarbons.
Current crude oil prices reflect high demand as the covid pandemic (crude dropped to low $20s in early 2020 after several years in the range $40-60) and broader supply chain crisis unwinds. Inflation today is price-led not wage led. This is not the seventies.
Demand will adapt and the price will ease. It will be a market correction, albeit probably with a degree of overshooting. It will not be a full blown recession unless Ukraine or some other external shock supravenes.
So it’s cyclical, who knew? Well, for a start, Saudi Arabia and the other major oil producers – much of whose surpluses are invested in western markets and who therefore have an interest in prices that are sustainably strong without provoking a recession that crashes stockmarkets, or energy demand, or drives faster transition away from hydrocarbons.
Current crude oil prices reflect high demand as the covid pandemic (crude dropped to low $20s in early 2020 after several years in the range $40-60) and broader supply chain crisis unwinds. Inflation today is price-led not wage led. This is not the seventies.
Demand will adapt and the price will ease. It will be a market correction, albeit probably with a degree of overshooting. It will not be a full blown recession unless Ukraine or some other external shock supravenes.