OIL as an Economic Indicator

OIL as an Economic Indicator
By: Alan C. Iannacito

Oil, a most loved and maligned commodity. What makes it so? We know the answer, but we’re too self-centered and impatient to own up. If we didn’t consume so much we’d find the stuff more reasonably priced. Ahem, is this the law of supply and demand? That’s much too easy an explanation and one that we are tired of hearing.

There’s more to it than supply and demand. In our ever clever inventiveness, we’ve created a need. We are good at making things and obsessive in their use. Why eat one brownie when we can eat the whole pan? The simple answer: gluttony. This is more than sin; it is unbelievably wasteful, resented by those who suffer and absolutely without parity between the rich and the poor.

Current in-your-face examples are our playthings: SUV’s, ATV’s, motorcycles, packaging, furniture, et al. If you think of it there is plastic somewhere, somehow either as structure or decorative material in the construction of most hard goods and packaging. To paraphrase MODERN PLASTICS WORLDWIDE e.weekly, (June 2-6, 2008), the underlying rise in petroleum and natural gas has caused the continuing rise in the cost of plastic resins. What is plastic but oil as an industrial transfat? So what’s new? Plastic resin is and has always been a commodity subject to price fluctuation. Okay consider the rest of the story.

Petroleum and natural gas are wanted by every developing country in the world, notably China and India. But if you look at NATIONAL GEOGRAPHIC Magazine’s June, 2008 Issue, learn about western Siberia’s Khanty-Mansi monster oil-field and where the flow goes. It’s a funnel from Siberia throughout Continental and Eastern Europe, and that’s it. They’re voracious consumers too. (Paul Starobin, Send me to Siberia, NGM, June, 2008).

I’m not knowledgeable enough to comment on the oil optimists or the naysayers but what has occurred is the direct result of the increased demand, and control. Remember we as consumers have contributed to the exponential use of oil. It has gone way past the need to fuel vehicles and transportation and electricity and the making of butter and guns.

Still we are captive to gadgets and gizmos at Wal-Mart prices. Here’s the long term kick in the pants. That cheap Chinese labor may still exist, but it’s a certainty, that the increasing demand for fuels, driving the prices worldwide will affect the costs of those cheap goods. No more cheap steel and plastic because of the high cost of shipping across oceans and atmospheres. What a turnaround we could see if it’s cheaper to make stuff at home than ship it from across the seas. What a concept. I’m not clever enough to figure that one out on my own. For a complete analysis see CIBC World Markets, StrategEcon, “The New Inflation,” By Jeff Rubin. (CIBC World Markets, May 27, 2008). Log onto http://research.cibcwm.com/res/Eco/EcoResearch.html.

There’s only one reality. Don’t need so much. Oh, I’m sorry that I’ve said it, but why do two person households have three cars, two ATV’s and a stable full of dirt bikes? Here’s that answer: because it’s fun, it creates jobs and it’s better than Prozac™ I’m guessing.