Tuesday, November 24, 2009
I thought on this blog I would try to post a main article on Monday morning (at least most of the time) that was relatively coherent, and a bit more accessible than I often am. Then, the rest of the week, I'd post some more wonky graphs that didn't make it into Monday's post and kind of round out the detail a bit.
The above graph is one like that. It explores the connection between oil price and global oil supply (all liquids) going back to Jan 2001, on a monthly basis. The data is the 5 month centered averages of the data in Monday's post, except going back further in time. Also, I cheated a bit in 2001, which is only based on EIA data, not the average of all three sources. That won't make a material difference.
I've broken out the 2001-2004 data from the 2005-2008 data, and then the data from this year is in orange. As you can see, something really did change around the end of 2004 when spare capacity in the global oil supply system largely got used up. Suddenly, it started taking a lot more price to increase supply. The slope of that curve is, up to some irrelevant technicalities, one over the elasticity. Things are a lot less elastic in the last five years.
Also, you can see that the orange data is entirely within the envelope of the 2005-2008 data. Prices fell, and are still below the peak, but that's not a basis for being reassured. The dynamics look the same, and it appears, unless something fundamentally game-changing comes along, that to raise supply much more will take an awful lot of price. Indeed, the graph above looks like it would asymptote to infinite price somewhere short of 90mbd. Whether that's literally true, I can't say, but the shape of the curve is certainly cautionary about expecting a large increase in supply any time soon.